UBS has long been skeptical about cryptocurrencies but the Swiss investment bank started warming up to the digital assets until the recent rout caused by China’s crackdown on crypto saw some coins shed as much as 50 percent of their value.
UBS says it believes that regulation poses a significant risk to digital assets, according to a note released earlier this week by its global wealth management team.
Governments worldwide have sought to take a more active role in regulating cryptocurrencies in response to a years-long boom in unregulated trading and mining of the digital assets.
Bitcoin, the largest cryptocurrency by value, slipped about 55 percent after hitting a record high of $64,000 in mid-April to around $28,800 on June 22, while other coins such as Ether and Dogecoin saw much deeper pullbacks.
“We’ve long warned that shifting investor sentiment or regulatory crackdowns could pop bubble-like crypto markets,” the UBS global wealth management team said in the note. “We think investors should avoid crypto speculation, and consider risk-adjusted returns before buying alternative assets.”
Here are five takeaways from the new bearish UBS report:
While UBS said it cannot rule out that cryptocurrencies will gain in the future, the speculative nature of crypto poses significant risks to professional investors.
“Despite the sell-off, top cryptos Bitcoin and Ethereum are still up 19% and 168% year to date, respectively, as of 28 June,” UBS said.
Savvy investors should consider building their portfolios around less risky assets that cannot be easily affected by regulatory changes.
Listen to GHOGH with Jamarlin Martin | Episode 74: Jamarlin Martin Jamarlin returns for a new season of the GHOGH podcast to discuss Bitcoin, bubbles, and Biden. He talks about the risk factors for Bitcoin as an investment asset including origin risk, speculative market structure, regulatory, and environment. Are broader financial markets in a massive speculative bubble?
UBS said it believes fintech stock investments could perform as well as cryptos without the associated risk. While the bank did not name any stocks, fintech companies such as Square and PayPal have experienced sizable gains over the past year, climbing 140 percent and 74 percent respectively.
“Crypto trading practices, such as extending 50X or 100X leverage, appear fundamentally at odds with mainstream finance regulation,” said the global wealth management team at UBS.
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