UBS Cautions of Cryptocurrency Winter Amid Fed Rate Hikes and Regulation Expectations

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Crypto Winter Can Last For A Long Time, According to UBS

UBS, Switzerland’s biggest bank, has warned of a crypto winter in which values would plummet and may take years to recover. In a recent letter to clients, the bank’s analysts, headed by James Malcolm, detailed reasons why bitcoin may lose its appeal to investors this year.

To begin, the UBS analysts said that interest rate rises by the Federal Reserve would limit the attraction of cryptocurrencies, such as bitcoin, to many traders who consider the asset class as a suitable alternative store of value.

According to the experts, investors may not maintain bitcoin as a hedge against growing prices if central banks take steps to control inflation. They pointed out that government support was crucial in digital currencies’ price rises in 2020 and 2021.

This year, the Fed is likely to increase interest rates many times. According to JPMorgan CEO Jamie Dimon, the Federal Reserve may have to hike short-term interest rates more than four times this year. According to Goldman Sachs, the Fed will hike interest rates four times this year. “The Fed probably has to raise many more times than what the market anticipates,” Wharton finance professor Jeremy Siegel warned.

For its significant volatility, some investors are gradually discovering that bitcoin is not better money, according to the UBS analysts. They also said that the digital currency’s limited supply made it inflexible as a medium of exchange. In addition, the researchers said that due to its decentralized architecture, blockchain technology is difficult to scale.

According to the UBS team, another big stumbling block for bitcoin is legislation. The analysts cautioned that widespread bitcoin speculation invariably invites closer oversight to protect consumers and protect monetary sustainability.  High-flying stablecoins and defi [decentralized finance] projects appear almost certain to face bigger obstacles from regulators in the months ahead, they said.

The Biden administration in the United States is working on a government-wide policy for crypto assets. Moreover, Gary Gensler, the head of the United States Securities and Exchange Commission (SEC), stated in the previous week that regulating cryptocurrency exchanges is a major focus.

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