The weakening of the arguments in favor of Bitcoin as a currency and inflation hedge against the backdrop of tightening the Fed’s policy speaks of the potential onset of a “crypto winter,” Business Insider has reported citing analysts at UBS Bank.
The experts have warned the current decline will take “years” to recoup as investors rethink digital assets. In particular, they cited BTC’s limited supply and high volatility as barriers to gaining “best money” status.
An increase in the Fed’s key rate will increase interest in the dollar and cast doubt on the attractiveness of digital gold as a store of value. Other factors cited include “weaknesses in the underlying technology” and regulatory overhauls that could slow down the industry.
The investment bank has noted that due to the decentralized design of blockchain, the technology is difficult to scale, as all participants must control and verify transactions. On the issue of regulation, the analysts have noted the need for increased government oversight to protect consumers and financial stability. They predicted:
“Stablecoins and DeFi projects in the coming months seem almost certain to face pressure from the authorities.”