Bitcoin crash crypto winter 2022 - The fall of bitcoin could be the beginning of a "crypto winter" in which prices plummet, according to UBS: three reasons that explain it
Cryptocurrency markets could be headed for another" winter " of price falls and may not recover for years, analysts at investment bank UBS have warned, as clouds build up that take the spotlight off digital assets.
Interest rate hikes by the US Federal Reserve in 2022 will dent the appeal of cryptocurrencies such as bitcoin in the eyes of many investors, analysts, led by James Malcolm, explain in a note to customers sent last Friday.
This is because rising interest rates are calling into question arguments that bitcoin is a good alternative as a currency or reserve of value.
Other factors are that the technology has many shortcomings, and that regulation could hinder the development of the industry.
Bitcoin crash crypto winter 2022
The price of bitcoin has fallen in recent weeks as markets became convinced that the Federal Reserve would raise interest rates three or more times in 2022. The leading cryptocurrency by market value dropped around 1% to $ 41,550 on Tuesday, well below an all-time high close to $ 69,000 hit in November.
UBS analysts, however, believe that there are reasons to think that things are about to get worse, leading to a "crypto winter" in which assets collapse and then fail to recover for a long time.
The last crypto winter came in late 2017 and early 2018, when bitcoin plummeted from about $ 20,000 to below $ 4,000 more than a year later, causing many investors to lose interest in digital assets.
If central banks are moving to control inflation, then that damages the argument that investors should keep bitcoin as a protection against price hikes, explain Malcolm and colleagues.
It is also simply bad for price, as the stimulus from central banks was a key factor that lifted crypto tokens in 2020 and 2021.
Analyst underlines Bitcoin crash crypto winter 2022
Analysts also underline that cryptocurrency investors are realizing that bitcoin is not "better money," because it is very volatile, and its limited supply makes it inflexible.
Another problem that could lead to a sharp fall in prices is the deficiencies of crypto technology.
For example, blockchain technology is difficult to scale due to its decentralized design, which requires all members of the network to be able to monitor and verify transactions, UBS analysts said.
Regulations for Bitcoin crash crypto winter 2022
Regulation is a third major problem, they write. Rampant speculation in cryptocurrency networks "inevitably invites greater oversight to protect consumers (and) financial stability," UBS notes.
"High-flying stablecoins and (decentralized finance) projects seem almost certain to face further setbacks from authorities in the coming months."
