Investment bank UBS analysts have warned that crypto markets may prepare for a new crypto “winter” and may not recover for years.
In a note shared with clients on Friday, analysts led by James Malcolm claimed that interest rate hikes by the Federal Reserve in 2022 will reduce the attractiveness of cryptocurrencies like Bitcoin in the eyes of many investors. According to analysts, this is because rising interest rates support arguments that Bitcoin is a good alternative currency or store of value. Other factors are the technology’s many shortcomings and the potential for regulations to hinder the development of the industry. Here are the details.
Crypto markets have tumbled as they believe the US Federal Reserve will raise interest rates three or more times in 2022. The leading cryptocurrency by market capitalization fell nearly 1.57% to $42,576 on Monday, well below the record high near $69,000.
But UBS analysts believe there is some reason to think things are about to get worse, suggesting a “crypto winter” in which assets plummet and then fail to recover for a long time.
The last crypto winter occurred at the end of 2017 and early 2018, when Bitcoin dropped below $4,000 more than a year after nearly $20,000, causing many investors to lose interest in digital assets.
Malcolm and his team noted that the move by central banks to contain inflation undermines the argument that investors should hold Bitcoin as a hedge against price increases. The Fed, which kept US interest rates low last year, is likely to raise at least three increases this year as it grapples with high inflation.
Analysts also noted that there is a new awareness among crypto investors that Bitcoin is not “better money” because it is so volatile and its limited supply makes it inelastic.
Besides these, another problem that can lead to a sharp drop in prices is the shortcomings of crypto technology. For example, UBS analysts said that growing blockchain technology is difficult because of its decentralized design, which requires all members of the network to audit and verify transactions. Regulation is a third big problem, they added.
“High-priced stablecoins and [merkezi olmayan finans] It looks like their projects will face bigger setbacks from the authorities in the coming months.”
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