UBS warns clients again about the “crypto bubble”

Swiss banking giant UBS has warned its clients about the risks that more intense regulatory requirements pose to the crypto market. A tougher regulatory crackdown could lead to a bursting of the "crypto bubble," according to the big bank.

In a letter to its clients, UBS explained why it considers digital assets too risky and unsuitable to offer to professional investors. Regulators around the world are eager to crack down on crypto markets, it said. After a tougher crackdown, the "crypto bubble" could burst, according to UBS.

Regulatory crackdown on cryptocurrencies

An obvious example of a change of mind among regulators is China. Although the official stance has been unclear for years, the recent crackdown came as a surprise to many. In addition to financial services involving cryptocurrencies, Beijing was also unhappy with the high energy consumption of Bitcoin mining.

"We have long warned that investor or regulatory sentiment could shift, bursting bubble-like crypto markets. Regulators have shown they can and will crack down on cryptocurrencies." - UBS statement

UBS therefore recommends that its clients keep their hands off cryptocurrencies. Instead, investors' portfolios should be built around less risky assets. Next, the big bank cited the U.S. and the U.K. as two countries likely to take action against the industry. The UK's Financial Markets Authority (FCA) already imposed a ban on crypto derivatives six months ago.

UBS's previous stance on Bitcoin

In the past, the major Swiss bank has increasingly expressed negative views on digital assets. Back in January, UBS warned in a study of a potential total loss when investing in cryptocurrencies. The authors cited regulatory uncertainties, the volatility of the asset and digital central bank currencies (CBDCs) as potential competition.

UBS has also struggled to calculate a "fair value" for Bitcoin. Thus, they were not able to evaluate the asset's role in a portfolio context. The big bank also could not resist a comparison with the tulip mania in the 17th century. Despite the harsh criticism, UBS announced in May that they do not want to deprive wealthy investors of access to the asset class.