Investing.com – It appears that May’s Chinese attacks on the crypto market, which coincided with the increasing escalation of attacks by major central banks around the world, will not pass by.
The cryptocurrency market reached its peak in mid-April, when the market value of digital currencies jumped to more than 2.5 trillion dollars, when Bitcoin increased to the levels of 65 thousand dollars. However, after intense attacks from regulators in China, the USA and the UK other than controversial tweets from Elon Musk, the crypto pool incurred losses culminating in the end of May with a loss of $1.3 trillion.
Although financial institutions and banks were not reluctant to announce new investments in the digital currency market, such as Microstrategy, Ark Investment Fund and Van Eck Funds. However, a clear shift has occurred in the investment banks’ view of the cryptocurrency market.
The world’s largest Swiss bank said in a warning to investors that regulators could blow up the bubble-like crypto markets. The Swiss bank joined the battalion of major banks to express their concerns about their clients investing in digital assets. Multinational investment banking giant UBS has warned its clients that crypto assets are not suitable for professional investors if regulatory pressures persist.
In a note sent, the global wealth management team at UBS said the recent crackdown in China has hurt cryptocurrency prices and operators. The Swiss bank warned that further regulatory hurdles around the world could exacerbate downward pressure on digital asset prices.
UBS said regulators have proven they can crack down on cryptocurrencies. So we suggest investors stay clear and build their portfolios around the least risky assets. “We have long warned that a change in investor sentiment or strict regulatory actions could lead to the emergence of bubble-like crypto markets,” the Swiss bank said.
While UBS acknowledged the potential for further gains from the cryptocurrency, it emphasized the risks that this speculative asset class could pose to investors. We cannot rule out future price gains in cryptocurrencies, the Swiss bank said, as we view this as a speculative market that presents significant risks for professional investors.
The Swiss bank also cautioned against leveraged trading, noting that “cryptocurrency trading practices, such as extending leverage by 50x or 100x, appear to be fundamentally at odds with prevailing financial regulations.
Some have argued that the emigration of retail power from China provides the mining industry with an opportunity to improve its environmental footprint and increase decentralization, UBS said. But banks see it differently, as UBS fears China’s actions will create a ripple effect around the world from financial regulators.
UBS’s expectations are already appearing to come true with the UK’s Financial Conduct Authority taking action against the world’s largest digital asset exchange on June 27. A number of leading UK banks, including TSB, NatWest and Barclays, have restricted their customers’ access to crypto exchanges since the FCA took action against Binance in late June.
Credit rating agency Fitch has warned that the growth of stablecoins that are not fully backed by safe assets could destabilize short-term credit markets. The agency said that coins that are fully backed by safe assets pose fewer risks to financial markets.
The agency gives American Coins (USDC), which are backed by US dollars on a 1:1 basis in custody accounts, as an example of fully backed stablecoins. But she cautioned that authorities “may still be concerned if the risks are likely to remain high”.
On the other hand, Tether held 26.2% of its cash reserves, credit deposits, reverse repo bonds and government securities, according to the March 2021 disclosure of the largest stablecoin issuer. Fitch highlighted that Tether’s holdings of commercial paper (CP), which account for 20.3 $1 billion — or roughly 50% of its reserves — “may be greater than those in most major money market funds (MMF) in the United States, Europe, the Middle East and Africa.”
The article does not express a recommendation or nomination, but merely a monitoring of market fluctuations, as trading in digital currencies involves high risks, including the risk of losing some or all of the investment amount, knowing that it is not completely subject to financial authorities and markets.