As of January 16, Bitcoin has seen a modest increase of 0.2% since the start of the year, following an impressive 157% rise in 2023. The cryptocurrency recently received regulatory approval in the U.S. with the SEC greenlighting the first Bitcoin exchange-traded funds (ETFs), a move that is expected to facilitate safer storage of digital assets.
Despite the SEC’s approval of Bitcoin ETFs marking a milestone in improving access to the leading cryptocurrency, UBS economists warn that the fundamental case for Bitcoin remains weak, even with enhanced accessibility and secure storage options.
Cryptocurrencies, including Bitcoin, continue to grapple with limited real-world applications. UBS economists point out that despite regulatory advancements, the practical utility of cryptocurrencies remains constrained.
The analysis also reveals that cryptocurrencies have the potential to significantly increase portfolio volatility. A modest 10% allocation to Bitcoin in a balanced portfolio could contribute to approximately 50% of the overall volatility, based on a decade-long retrospective analysis.
Bitcoin’s role as a diversifier and its historical performance are scrutinized, revealing a tendency to move in tandem with the stock market, albeit with much higher volatility, raising questions about its effectiveness as a risk-reducing asset in diversified portfolios. Additionally, sustainability concerns persist, especially due to the energy-intensive mining processes, which increase with rising Bitcoin prices, heightening environmental sustainability issues.