UBS offers clients a guide to investing in Bitcoin

Switzerland's largest bank, UBS, has published a guide for clients on investing in Bitcoin. The bank answers important questions such as whether you should buy Bitcoin and other cryptocurrencies and whether you can use Bitcoin to diversify your portfolio. UBS Group AG is a multinational investment bank and financial services company founded in Switzerland. UBS has two headquarters in Zurich and Basel, Switzerland; as the world's largest Swiss banking institution, UBS has offices in major financial centers around the world. UBS is known for its strict confidentiality policy for client information and its culture of banking secrecy.

Should I buy Bitcoin? UBS's answer

UBS published a detailed report on Bitcoin last week. The report's authors explained that it answers some of the questions the bank is currently discussing with clients, including Michael Bolliger, the firm's chief investment officer for global emerging markets. UBS is currently the largest bank in Switzerland by total assets, followed by Credit Suisse Group AG.

The first question UBS answers in its report titled “The Rise of Bitcoin” is “Should I buy Bitcoin?” The report explains that “many clients are asking whether they should invest in Bitcoin and other cryptocurrencies,” adding:

Our general guideline is this: While we do not rule out further gains for Bitcoin, we remain skeptical of any fundamental real-world use case for cryptocurrencies, which makes it difficult to estimate a fair value for Bitcoin and other cryptocurrencies.

“We also recognize the real risk that one loses their entire investment. Therefore, investors in cryptocurrencies must limit the size of their investments to a level they can afford to lose. We also recommend considering an exit strategy,” the report authors elaborated.

The authors acknowledge that “in reality, cryptocurrency prices may continue to climb in the near term.” The authors warn: “We believe that the risk of Bitcoin and other cryptocurrencies going to zero will be greatly reduced when better financial system design or strict regulation emerges.”

Can Bitcoin be used to diversify a portfolio?

Another important question answered by UBS is whether Bitcoin can be used to diversify a portfolio. The report highlights that this topic "has become a major discussion point for investors". UBS noted: "Bitcoin's correlation with other commodities rose sharply in 2020 as the coronavirus pandemic broke out, but has since returned to normal. Although the empirical evidence is mixed, Bitcoin's actual performance is generally less correlated with other asset classes such as bonds, stocks, Swiss francs and gold."

The bank also highlighted that both institutional and retail investors are buying Bitcoin. The reasons for the purchase include Bitcoin being an attractive investment opportunity, a hedge against the depreciation of fiat currencies, and FOMO sentiment.