UBS warns Bitcoin is unsuitable for investment as tougher regulation is coming

Sarah Tan | FXStreet

July 7, 2021

On the Web

UBS raises concerns of a “crypto bubble” that could be popped as regulator crackdowns continue. 

The Swiss banking giant stated that stricter regulations could come in the West in addition to China’s recent restrictions and ban on the new asset class.

The investment bank told investors to stay clear of cryptocurrencies and to build their portfolios around less high-risk assets.

UBS has warned investors to “stay clear” of cryptocurrencies given that regulators have been cracking down on the new asset class.

Regulators could pop ‘bubble-like crypto markets’

The Swiss banking giant drew attention to the recent regulatory crackdowns, alerting its clients that digital assets like Bitcoin are unsuitable for professional investors.

UBS suggested that regulators worldwide could eventually “pop bubble-like crypto markets.” The bank said in a note to its clients that regulators have demonstrated that they have the ability to crack down on cryptocurrencies. The investment bank’s suggestion was for clients to “stay clear” of digital currencies and build a portfolio around “less risky assets.”

The Swiss bank said:

We’ve long warned that shifting investor sentiment or regulatory crackdowns could pop bubble-like crypto markets.

The UBS global wealth management team highlighted China’s recent ban on cryptocurrencies and the plunging prices in the aftermath. China has further clamped down on digital assets, imposing new restrictions on crypto mining in June, with authorities in multiple provinces including Yunnan, Xinjiang and Sichuan shutting down operations.

The Chinese central bank further ordered large banks and payment service providers to cut off all transactions associated with Bitcoin, citing that digital assets have been disrupting the “normal order of the economy and financial system.” The People’s Bank of China believes that cryptocurrencies pose significant risks, including money laundering.

The bank believes that there are signs of tougher rules to come for Western markets, including the United States and the United Kingdom.

Cryptocurrency exchange Binance has been in the spotlight, as it has been under investigation by the Justice Department and Internal Revenue Serivce in the US. The platform has also run into obstacles as the authorities in the Canadian province of Ontario have issued a notice accusing the exchange of failing to comply with regulations.

Binance also faces challenges in the UK, where the country’s financial watchdog barred the exchange from carrying out any “regulated activities.” Recently, the Japanese Financial Services Agency sent the crypto platform a second warning that the firm has not registered to operate in the country.

Certain practices in the cryptocurrency market, including overleveraged trading, as UBS specifically stated, “50X or 100X leverage, appear fundamentally at odds with mainstream finance regulation.”

Although the Swiss banking giant foresees that cryptocurrency prices could see a considerable uptick in the future, UBS views the digital asset market as speculative and “poses significant risks to professional investors.”

However, the investment bank has started to explore different ways to allow its clients to gain exposure to cryptocurrencies since mid-May. Citing the increase in demand, UBS said there was concern that it may lose its clients if it did not jump on the bandwagon.

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