UBS: Bitcoin 'has all the hallmarks of a bubble'

  • UBS on bitcoin: “We believe this has all the hallmarks of a bubble.”
  • But bank tells clients to bet on blockchain, the technology underpinning bitcoin.
  • UBS’s position is in line with ING, but other banks are warming up to bitcoin.

LONDON – UBS has reiterated its view that bitcoin, and wider cryptocurrency markets, are in a bubble.

The Swiss bank said in its weekly “House View” note: “We believe this has all the hallmarks of a bubble. High turnover, against limited real-world use, suggests that many buyers are seeking speculative gain. And while the supply of Bitcoins is limited, the broader stock of cryptocurrencies is not, with thousands of potential substitutes.”

The note, from the Chief Investment Office of UBS’ Wealth Management branch, reiterates a position the bank set out in October. UBS said then that it thought the entire cryptocurrency market was in a “speculative bubble.”

“We don’t advise clients either to invest in Bitcoin or to short it – on the principal that markets can remain irrational longer than you can remain solvent,” UBS wrote in its note this week.

When UBS first warned against cryptocurrencies in October the market was worth around $US175 billion at the time. As of Wednesday, it is worth over $US600 billion.

While the bank is dismissive of bitcoin, it recommends clients invest in blockchain, which is the technology that was first developed to underpin the bitcoin network.

“We expect [blockchain] to generate USD 300bn-400bn of global economic value by 2027,” UBS said.

UBS’ scepticism of bitcoin puts it in league with Dutch bank ING, which said on Monday that it believes the cryptocurrency will become a “niche asset” despite its current popularity.

Other investment banks have taken a more positive position towards the cryptocurrency space. Goldman Sachs said in August:“It’s getting harder for institutional investors to ignore cryptocurrencies.” Despite public criticism of bitcoin from its CEO, JPMorgan said earlier this month that bitcoin has the potential to be an “emerging asset class.” And Morgan Stanley CEO James Gorman said in September that bitcoin is “more than just a fad.”

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