How to invest in cryptocurrencies with less volatility when Bitcoin crashes: UBS


“Direct exposure to cryptos is highly speculative,” Chief Investment Officer Mark Haefele wrote in the Swiss bank’s latest research report. “The latest drop undermined the asset class’s most common defenses.” The world’s largest asset manager maintained its bearish stance on crypto as digital currencies continue to struggle in early 2022.

But UBS has highlighted three ways to invest in crypto technology without exposing a portfolio to increased risk. Insider breaks down all the details of the bank’s latest $2.6 trillion crypto report.

Haefele has never endorsed investing in crypto due to its highly speculative nature. This contrasts with more optimistic banks on Wall Street – including Goldman Sachs, which recently set bitcoin a long-term price target of $100,000.

The fall of crypto

Bitcoin and Ethereum are down 22% and 29%, respectively this year. For Haefele, this crisis has weakened the common case for investing in crypto.

First, he said the fact that cryptocurrencies and stock markets are struggling at the same time – with the S&P 500 down 4% in 2022 – demonstrates that digital currencies do not act as a diversifier for investors. stock portfolios. Currently, bitcoin is roughly 80% correlated with the S&P 500, indicating that it is more likely to move near perfect with the index.

“Although the correlation of cryptos to stocks has generally been low, they have failed to provide effective hedging when they needed it most,” Haefele said. “When the S&P fell 5.2% for its worst January since 2009, Bitcoin lost 17% and Ethereum 27%.”

“We find it increasingly difficult to think of cryptos as a form of ‘digital gold’ that offers such protection,” he said. “They have continued to decline despite recent data showing that US inflation rose at its fastest pace in nearly four decades.”

Second, Haefele argued that the current sell-off shows that the crypto is no longer an effective hedge against inflation, which hit a 40-year high in December 2022.

Investment strategies

“Direct exposure to cryptos is highly speculative,” Haefele added. “But that doesn’t mean the technology underlying digital assets isn’t promising for investors.”

UBS has estimated that blockchain technology will increase global GDP by $1 trillion over the next decade, with applications in industries including financial services, healthcare and luxury goods. Haefele has mapped out three paths for investing in the sector.

Investing in blockchain enablers and platform operators is a way to gain exposure, he said. Haefele advised targeting industries that will benefit from widespread adoption, such as semiconductor makers and software developers.

“As technology is increasingly used over the next five to 10 years, we see opportunities from the introduction of new services and product categories, savings possible through the use of technology, price potentially lower and an overall improvement in business efficiency,” he said. noted.

Insider recently published a list of 28 semiconductor stocks that Wall Street analysts recommend as buys.

“Investing in based companies now is like investing in technology platforms a decade ago,” Haefele said. “With COVID-19 accelerating the wider digitization of the world,

Fintech and DeFi companies also offer a path to blockchain, according to Haefele. He said crypto-native companies often enjoy a first-mover advantage when the underlying technologies develop.

could trigger a similar wave of disruption.

fintech companies

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