Switzerland’s largest bank, UBS, has published guidance for clients about investing in bitcoin. The bank answers some important questions, such as whether one should buy bitcoin and other cryptocurrencies and whether bitcoin can be used to diversify portfolios.
‘Should I buy’ Bitcoin? UBS Answers
UBS published a detailed report about bitcoin last week. It answers some questions that the bank is currently discussing with its clients, explained the report authors, including the firm’s chief investment officer of global emerging markets, Michael Bolliger. UBS Group is currently Switzerland’s largest bank by total assets, followed by Credit Suisse Group.
The first question UBS answered in its report entitled “The rise of bitcoin” was “Should I buy?” The report explains that “Many clients are asking whether they should invest in bitcoin and other cryptocurrencies,” adding:
Our general guidance is this: While we wouldn’t rule out further price increases, we’re somewhat skeptical of any essential real-world use cases, which makes it hard to estimate a fair value for bitcoin and other cryptocurrencies.
“We are also cognizant of the real risk of one losing one’s entire investment. Investors in cryptocurrencies must therefore limit the size of their investments to an amount they can afford to lose. We also suggest thinking about an exit strategy,” the report authors elaborated.
While admitting that “Indeed, prices [of cryptocurrencies] could continue to climb in the near term,” the authors warned that “There is little in our view to stop a cryptocurrency’s price from going to zero when a better designed version is launched or if regulatory changes stifle sentiment.”
Can Bitcoin Be Used to Diversify Portfolios?
Another important question UBS answered was whether bitcoin can be used to diversify portfolios. This subject “has become a key argument for investors,” the report emphasizes. Noting that “correlations spiked substantially in 2020 with the outbreak of the pandemic, but have normalized since,” UBS explained:
While empirical evidence is mixed, bitcoin has had an overall low correlation to a wide range of other asset classes, including bonds, stocks, the Swiss franc, and gold.
The bank also highlighted that both institutional and retail investors are buying bitcoin. The reasons for buying include bitcoin being an attractive investment opportunity, a hedge against depreciating fiat currency, and FOMO.
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