Switzerland’s Largest Bank UBS Warns of a Potential Crypto Winter

Switzerland’s largest bank, UBS has warned of a potential crypto winter where prices are poised to crash and won’t even recover for years. This goes back to the crypto winter at the end of 2017 and early 2018, where the market was in a consolidation phase for almost 2 years. At that time, BTC crashed from around $20,000 to below $4,000 the next year causing many investors to lose interest in digital assets. In a recent note to clients led by analyst James Malcolm, the UBS banker warned that cryptocurrencies could lose their appeal among investors this year. To begin with, the analysts explained that the Federal Reserve’s interest rate hikes could result in investors moving away from Bitcoin (BTC), which is seen as a good store of value. The report noted that government stimulus was a key factor boosting the prices of cryptocurrencies in 2020 and 2021. The hike in interest by the Central Bank is bound to come if inflation continues to surge. The analysts noted that if central banks get a grip on inflation control, investors may not be holding bitcoin as protection against rising prices. The Fed is expected to raise interest rates several times this year. In fact, JPMorgan CEO Jamie Dimon recently said that the Federal Reserve will have to raise short-term interest rates more than four times this year. Similarly, Goldman Sachs too expects that the central bank could raise interest rates four times this year. Even Wharton’s finance professor Jeremy Siegel said earlier this month, “The Fed is going to have to hike many more times than what the market expects.” Another problem that could come is due to the shortcomings of Bitcoin’s technology and its inefficiency to being a better form of currency due to its high volatility and limited supply. In fact, its underlying blockchain technology is hard to scale up because of its decentralized design. Lack of regulation is another issue that could hamper the growth of cryptocurrencies. In an effort to protect financial stability, digital assets 'inevitably invites closer oversight to guard consumers.' Even the 'high-flying stablecoins and DeFi projects seem almost sure to face bigger setbacks from authorities in the coming months,' the analysts warned.