Regulators’ crackdown could burst crypto bubble and mean bitcoin is not suitable for professional investors, says UBS

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China is increasingly attacking bitcoin.

Florence Lo / Illustration / Reuters

Regulatory crackdowns make bitcoin inappropriate for professional investors and could burst the bubble, UBS said. The bank pointed out that China is cracking down on mining and growing concern over crypto in the UK and US. He also said the common practice of trading cryptos with leverage is likely to attract the attention of regulators. Sign up for our daily newsletter, 10 things before the opening bell here.

Regulatory crackdowns could burst bubble-like crypto markets and mean bitcoin is not suitable for professional investors, Swiss banking giant UBS has warned its clients.

In a note sent last week, UBS’s global wealth management team said the latest crackdown in China has hurt crypto prices and operators. He also said there were signs that stricter rules could be in the works in Western markets such as the United States and the United Kingdom.

“Regulators have shown that they can and will crack down on crypto,” the note read. “We therefore suggest that investors remain clear and build their portfolios around less risky assets.”

He added: “We have long warned that changing investor sentiment or regulatory crackdowns could burst bubble-like crypto markets.”

Read more: America’s top $ 2 trillion portfolio manager Amundi explains why bitcoin and ether won’t play a bigger role in the financial system 10 years from now – and says a regulatory storm is coming for crypto

UBS’s warning to clients said a number of recent regulatory developments were of concern for cryptocurrencies.

China renewed its restrictions on the IT process known as cryptocurrency “mining” in June, with authorities in Sichuan province shutting down numerous sites.

In the United States, Boston Federal Reserve Chairman Eric Rosengren has said stablecoin Tether is one of the “financial stability challenges” he is watching. And the UK’s Financial Conduct Authority has banned the Binance crypto exchange from operating in the country.

The UBS memo added: “Crypto trading practices, such as extending leverage by 50X or 100X, seem fundamentally at odds with traditional financial regulation.”

The Swiss bank’s concern over cryptocurrencies is shared by many other lenders. Goldman Sachs analysts said in May that bitcoin was “not a suitable investment” and raised concerns about its volatility and lack of liquidity.

However, Wall Street is divided on cryptocurrencies – as are the banks themselves. Goldman Sachs, for example, relaunched its crypto trading desk this year to take advantage of the crypto boom, despite its reservations.

UBS said in its note: “While we cannot rule out future price gains in cryptos, we view this as a speculative market that presents significant risks for professional investors.”

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