UBS warns of an ‘apocalyptic crypto-winter’

The weakening case for Bitcoin as a currency and an inflation hedge amid the Fed’s tightening policy points to the potential onset of a ‘crypto-winter’. UBS analysts say this, reports Business Insider.

Experts warned that the current decline will be felt for ‘years’ due to investors rethinking digital assets. In particular, they noted limited supply and Bitcoin’s high volatility as barriers to attaining the status of ‘the best money’.

An increase in the Fed’s policy rate will boost demand for the dollar and raise doubts about the appeal of digital gold as a store of value. Other factors cited include ‘shortcomings in the underlying technology’, as well as regulatory reviews that could slow the sector’s development.

The investment bank noted that, due to the decentralized design of the blockchain, the technology is hard to scale because all participants must monitor and verify transactions. On regulation, analysts noted the need for tougher oversight by authorities to protect consumers and financial stability.

Stablecoins and DeFi projects in the coming months are likely to face regulatory pressure, the analysts forecast.

UBS conceded that the current softening to $34,000 from a record $69,000 in November could extend beyond that level, and a crypto-winter could be on the horizon. The market’s last prolonged downturn in digital assets occurred in late 2017, when Bitcoin fell from $20,000 to $4,000 and below.

Analysts noted that it was the Fed’s stimulus that powered the rally from late 2020.

Earlier, a Bloomberg strategist forecast Bitcoin to reach $100,000 in 2022. He expressed confidence that digital gold would benefit from a 10%-20% stock-market correction.

Earlier, Invesco allowed for Bitcoin to fall below $30,000 in 2022, as ‘the asset bubble deflates’.

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