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Florence Lo/Illustration/Reuters
- Crackdowns by regulators make bitcoin unsuitable for pro investors and could pop the bubble, UBS said.
- The bank pointed to China clamping down on mining, and the growing concern over crypto in the UK and US.
- It also said the common practice of trading crypto with leverage is likely to draw regulators’ attention.
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Regulatory crackdowns could pop bubble-like crypto markets and mean bitcoin is unsuitable for professional investors, Swiss banking giant UBS has warned its clients.
In a note sent out last week, UBS’ global wealth management team said China’s latest crackdown had hurt crypto prices and operators. It also said there were signs that tougher rules could be in the pipeline in Western markets such as the US and UK.
“Regulators have demonstrated they can and will crack down on crypto,” the note read. “So we suggest investors stay clear, and build their portfolio around less risky assets.”
It added: “We’ve long warned that shifting investor sentiment or regulatory crackdowns could pop bubble-like crypto markets.”
UBS’ warning to clients said a number of recent regulatory developments were a concern for cryptocurrencies.
China renewed its restrictions on the computing process known as cryptocurrency “mining” in June, with authorities in Sichuan province closing down numerous sites.
In the US, Boston Federal Reserve’s president Eric Rosengren said stablecoin Tether was one of the “financial stability challenges” it is watching. And the UK’s Financial Conduct Authority banned crypto exchange Binance from operating in the country.
UBS’s note added: “Crypto trading practices, such as extending 50X or 100X leverage, appear fundamentally at odds with mainstream finance regulation.”
The Swiss bank’s concern about cryptocurrencies is shared by many other lenders. Goldman Sachs analysts in May said bitcoin is “not a suitable investment” and listed concerns about its volatility and lack of cash flow.
However, Wall Street is divided on cryptocurrencies – as are banks themselves. Goldman Sachs, for example, relaunched its crypto trading desk this year to take advantage of the crypto boom, in spite of its reservations.
UBS said in its note: “While we can’t rule out future price gains in cryptos, we see this as a speculative market that poses significant risks to professional investors.”
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