Amid the crypto market crash and prospects for a swift recovery, is the industry headed for a long bear market?
The biggest Swiss bank, UBS, responded to this question with an ominous warning of a devastating crypto winter, with values of cryptocurrencies being on the verge of collapse. The Bank also issued a chilling caution that prices would take years to rebound to their highs. Several factors have led to this conclusion, according to the bank’s analysts.
The cryptocurrency market has seen extraordinary devastation in the last few days. UBS, the Swiss banking powerhouse, has issued a warning that further price drops are on the way. Prices are unlikely to improve for several years. James Malcolm, backed by an entire team of analysts also sent out a note to his clientele. Cryptocurrencies likely will lose their allure among investors in 2022, according to the note.
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 key explanation given by UBS analysts was that interest rate increases by the Federal Reserve would make cryptocurrencies less appealing. At the time being, a big number of investors view Bitcoin (BTC) and other cryptocurrencies as an excellent replacement store of value, and the warning of the UBS surely received backlash from crypto enthusiasts.
The research also identified the US government’s stimulus checks as a key driver fueling the 2020 and 2021 cryptocurrency price surges. If the US economy’s soaring inflation is to be contained, the Central Bank will have to raise interest rates. Investors may not hold Bitcoin (BTC) as a hedge against rising costs if the central bank manages inflation.
This year, the Federal Reserve is likely to boost interest rates many times. The Federal Reserve, according to JPMorgan CEO Jamie Dimon, will have to hike interest rates over 4 times by year’s end. Goldman Sachs agrees, predicting that interest rates would be raised exactly 4 times for 2022. Jeremy Siegel, a finance professor at Wharton, believes that rising inflation would force the Fed to raise interest rates far more frequently than the market anticipates.
According to UBS, investors are finally realizing that Bitcoin (BTC), with its unpredictability and volatility, is not a smart investment or a way to protect asset values from deteriorating. They also said that the limited supply of Bitcoin (BTC) makes for a current that is ultimately inefficient. The researchers went on to say that due to its decentralized design, blockchain technology is not easy to scale.
The absence of regulation is another important factor impeding the adoption of cryptocurrencies. Price volatility necessitates increased oversight which would be designed to safeguard investors’ interests. Even the supposedly stable and top stablecoins and DeFi initiatives are almost certain to encounter more significant regulatory hurdles in the months to come for 2022.