Is the cryptocurrency market about to enter a period of prolonged bearish phase? The largest Swiss Bank, UBS, has warned of apocalyptic crypto winter, and the prices are poised to crash, reports news.bitcoin.com. The Bank also gave an eerie warning that the prices would not recover for years. The bank’s analysts have underlined several reasons which have led to this conclusion.
High volatility makes Cryptocurrency unattractive to investors
The past few days have witnessed unprecedented carnage in the cryptocurrency sector. The Swiss Banking behemoth, UBS, has warned of more price crashes. The prices will not recover for years to come. In addition, a group of analysts led by James Malcolm circulated a note among its clients. The note warned that Cryptocurrency is losing its luster among investors in 2022.
UBS warns of a potential “crypto winter” where prices fall meaningful and don’t recover for months or longer.
— Michael A. Gayed, CFA (@leadlagreport) January 22, 2022
The main reason outlined by UBS analysts underlined the Federal Reserve’s interest rate hikes would decrease the attractiveness of cryptocurrencies. Many investors see crypto-assets such as bitcoin as a good alternative store of value.
Cryptocurrency values boosted by stimulus checks
The report also indicted the stimulus checks doled out by the US government as a key factor boosting the prices of cryptocurrencies in 2020 and 2021. The hike in interest by the Central Bank is inevitable if the surging inflation in the US economy is to be controlled. If the central Bank handles inflation, investors may not be holding bitcoin as protection against rising prices.
The Fed is expected to raise the interest rates several times this year. JPMorgan CEO Jamie Dimon feels that Federal Reserve will have to raise the interest rates more than four times this year. A similar view is also held by Goldman Sachs, who said that the rates would see interest rates raises four times this year. Wharton’s finance professor Jeremy Siegel said that the surging inflation would lead to the Fed hiking interest rates many more times than what the market expects.
The truth is finally dawning upon investors that Bitcoin (BTC), with its high volatility, is not a good investment and a means to prevent the erosion of values of assets. In addition, they said Cryptocurrency’s finite supply makes it inflexible as a currency. The analysts further stated that blockchain technology is hard to scale because of its decentralized design.
Another major factor that hampers the spread of cryptocurrencies is the lack of regulation. The high volatility also leads to closer scrutiny to protect the interest of the investors. Even the deemed robust and high-flying stablecoins and DeFi [decentralized finance] projects seem almost sure to face more considerable setbacks from authorities in the coming months.