An investor from the world’s largest wealth management business, UBS Group AG, went into detail about the firm’s stance on cryptocurrencies. Citing insufficient government regulation, they went on to say that the firm is not prepared to take on the challenge of maintaining digital currencies in their portfolio.
Hedge fund management schemes typically stay clear of high-risk investments even if it nets them high rewards. Given the unpredictable nature of cryptocurrency prices, it is no surprise that UBS shows less and less interest in the currency over time. Turbulence in the price of bitcoin is nothing new for most long-time investors, but for people entering the market for the first time, drops of thirty percent are far from confidence inspiring.
In spite of surpassing $100 billion in market capitalization, bitcoin still has a long way to go before it is close to competing with any other currency in that regard. Even gold’s market cap handily beats bitcoin.
Drawing similar conclusions, UBS have merely stated that it is still too early to begin investing in bitcoin. In fact, even considering all cryptocurrencies, on the whole, it still would not equal other investments that the group currently orchestrates.
Further, UBS’ fear stems from untoward incidents that could have a damaging effect on the already volatile market. As an example, if a terrorist attack were to be facilitated with the aid of bitcoin, it would lead to a severe crackdown by governments around the world. Cryptocurrencies have simply not stood the true test of time and thus, remain to be a high-risk asset for many firms.
The Battle Between Investment Banking & Cryptocurrencies
The clash between investment banking and cryptocurrencies is nothing new. In September 2017, JPMorgan’s CEO, Jamie Dimon, publically called bitcoin a “fraud.” He also denounced any credibility for its future by claiming that its only use is for transactions of an illegal nature. Other critics have been quick to call bitcoin a bubble that will inevitably collapse at some point.
Bitcoin’s initial pitch in 2009 was as a currency, but with its price looking to test $10,000, it has since become a store of value instead. In the past, stores of value, like the housing market, have had abrupt and gruesome endings, which further adds credence to the claims of bitcoin being a bubble.
The Vietnamese government declared a ban on the usage of bitcoin and other cryptocurrencies in financial transactions earlier this year. In September, China banned Initial Coin Offerings (ICO) and pressured all exchanges in the country to cease operations. It is clear that apprehension for cryptocurrencies is at an all-time high and that we have already seen a few other countries taking similar measures.
Despite the cynicism, bitcoin’s price has seen an eightfold increase in 2017 alone. Even though most wealth management firms like UBS refuse to touch cryptocurrencies with a ten-foot pole, those already invested in the market have benefited massively from it. As worldwide acceptance of digital currencies continues to rise, solutions may arise that prove inviting for many investment firms.