Ubs cryptocurrency

After sharp gains through much of , crypto prices are on the retreat. Heavy volatility in these highly speculative assets comes as no surprise, and we continue to advise most investors avoid direct holdings. Instead, we suggest investors consider distributed ledger technology DLT exposure via select enablers, platforms, and service providers.

Crypto coins and tokens rallied through much of despite regulatory pressure, fraud, and other risks. Now, the Fed's aggressive signaling that it will hike interest rates from March has unsettled investors. But the underlying technology and its application show obvious promise. Financial services appears most ripe for DLT-led disruption in areas like payments, lending, private placements, and trade finance. More broadly, decentralized finance DeFi could help reduce financial system frictions, broaden access to underbanked communities, and address inequality.

Self-executing "smart contracts" could enable previously unviable products or services in industries like healthcare, public services, consumer and luxury goods, and more. So we advise investors to consider other ways to position for distributed ledger technology adoption.

We view direct exposure in crypto coins or tokens as attractive only for highly risk-tolerant and speculative investors. Instead, we focus on DLT enablers and service providers, like select chipmakers, software companies, and data center players. We also like platform companies that can tap DLT growth in their own sectors, ranging from financial services and technology to supply chain management.

But the UBS analysts believe there are reasons to think things are about to get worse, leading to a "crypto winter" where assets slide and then fail to come back for a long time. If central banks are moving to get a handle on inflation, then that damages the argument that investors should hold bitcoin as protection against price rises , , Malcolm and his colleagues said.

It's also simply bad for the price, as central bank stimulus was a key factor lifting crypto tokens in and The Fed, which held US interest rates low last year, is seen as likely to bring in at least three increases this year, as it grapples with sky-high inflation.

The analysts also said there's also a dawning realization among crypto investors that bitcoin is not "better money", because it's very volatile and its limited supply makes it inflexible. Another problem that could lead to a sharp fall in prices is the shortcomings of crypto technology. For example, blockchain technology is hard to scale up because of its decentralized design, which requires all members of the network to be able to oversee and verify transactions, the UBS analysts said.

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Nowadays, investors have taken to diversification by investing in diversified index funds or ETFs which have a proven record of long-term growth in value. Another way to gain exposure to cryptocurrencies is to invest in companies that have a stake in the cryptocurrency industry like Coinbase COIN , for instance. More recently, Bitcoin mining ETFs have come into the picture which allows investors to put their money on BTC mining without actually undergoing many of the risks associated with it.

Don't miss a thing! Sign up for a daily update delivered to your inbox Sign Up. This includes issues of tax evasion, money laundering, and other illicit online activities where anonymity is a dire ingredient in solicitous and fraudulent activities. By using cryptography, virtual currencies, known as cryptocurrencies, are nearly counterfeit-proof digital currencies that are built on blockchain technology. Donovan added that the supply of cryptocurrencies cannot be reduced in case of a slump in demand.

According to a report published by Bloomberg, Donovan defined actual currencies as a stable store of value and said that fiat currencies provide certainty. He mentioned that people are not sure what they can buy with cryptocurrencies tomorrow and there is no structure of switching off crypto supply.

That confidence is derived from central banks' ability to reduce supply when demand is falling. Price Stability in Cryptocurrencies Crypto assets have always been volatile in nature. Economists around the world have criticized cryptocurrencies for not presenting a stable store of value. Donovan added that it is difficult for people to use a currency that is not stable in value.

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