By Jessica Bahia Melo
Investing.com - After a slight rally in cryptocurrency markets on Tuesday, Bitcoin retreated again below $30,000, while Terra continues its freefall.
Tether, the largest stablecoin, has rallied back to its intended parity with the US dollar, but the drop below that level over the past week has damaged its credibility, according to the bank, also impacting shares of cryptocurrency exchange Coinbasewhich lost a third of its value last week.
Within this context, UBS called the situation a “torrid moment”, noting that cryptocurrencies have failed as a prospective safeguard against inflation, and as a contrarian asset to hedge against volatility.
According to UBS, the recent crypto market panic holds lessons for investors and reinforces the view that digital assets remain highly speculative and unsuitable for most wallets.
“We believe cryptocurrencies have been ineffective as a portfolio diversifier or hedge against inflation. The claim that crypto is not correlated with traditional financial assets has weakened substantially - with Bitcoin and Ether both showing a strong positive correlation (>0.95) with the Nasdaq and ARK ETF. And yet, cryptocurrency offers less liquidity, more volatility and high correlation,” says the bank.
Furthermore, the report highlights that Bitcoin and other cryptocurrencies have also failed to act as a “digital gold” or inflation hedge, “with asset prices rapidly deflating in a high inflation and higher fee regime, demonstrating their reliance on currency expansions and policy conditions.
UBS believes regulators need to step up measures in a concrete way, and big losses in the crypto market have accelerated that need.
In a similar vein, this week included statements from the Bank of France and the US Treasury that cryptocurrencies remain poised to negatively disrupt the global financial system if they are not regulated. Janet Yellen , the US Treasury Secretary, promised last week that stablecoin legislation would come within a year.