Swiss banking big UBS recommends remaining cautious with cryptocurrencies, citing quite a lot of macroeconomic and industry-specific considerations.
UBS analysts say aggressive measures by central banks to combat inflation with larger rates of interest have severely dented progress expectations and funding urge for food, notably affecting sectors reminiscent of cryptocurrencies, that are carefully tied to high-beta know-how shares.
Additionally they famous a “vital improve in correlation between and amongst these shares over the course of the yr.”
The report highlights how the crypto {industry} has confronted additional upheavals brought on by particular occasions, such because the collapse of the Terra Luna stablecoin, which set off a sequence response of bankruptcies within the sector.
This included main platforms like Celsius and hedge funds like Three Arrows Capital. As well as, November 2022 noticed the dramatic failure of FTX, as soon as the second largest crypto alternate on the planet, together with its sister buying and selling agency Alameda.
“FTX's collapse was notably damaging, given its widespread affect all through the crypto ecosystem and former position in serving to different companies in bother,” he added.
The collapse of FTX and Alameda not solely affected their direct operations, but additionally despatched shockwaves by way of associated firms and funding autos, together with Genesis' $175 million publicity.
The UBS analysis report additionally gives an in depth evaluation of the dramatic decline following the collapse of FTX, focusing specifically on the extreme influence on (SOL) and the broader enterprise capital panorama.
In response to the report, “By Alameda, Bankman-Fried instantly invested in choose crypto tasks, one among which was Solana. In early November, Alameda disclosed a SOL place of greater than $1 billion, representing an estimated 10% of the whole SOL market capitalization.”
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This funding turned problematic because the FTX/Alameda debacle unfolded, severely affecting Solano's market place and investor confidence.
The report additionally touches on considerations associated to “packaged” bitcoins and ethers within the Solana ecosystem, highlighting the complexities and dangers of cryptocurrencies backed by different tokens, particularly when the depository faces solvency points.
On the enterprise capital aspect, the UBS evaluation factors out that whereas the crypto market downturn has triggered disruption, the enterprise capital {industry}'s general publicity to digital property stays comparatively low.
Nevertheless, the report notes: “Choose enterprise capitalists (VCs) and growth-focused personal fairness managers have been outstanding traders in digital property, and the collapse of Terra Luna and FTX has raised questions on potential losses and the managers' survival.”
Lastly, the report advises that every boom-and-bust crypto cycle, whereas difficult, is a crucial step within the maturation of the {industry}.
UBS concludes that “with much less competitors for capital, extra practical valuations and extra transparency and regulation, we predict digital property will provide a greater, investable setting sooner or later.”
