Last week, the UBS Global Wealth Management team published research notes on alternative investments that allow you to hold cryptocurrencies directly.
UBS Chief Investment Officer Mark Haefele explained that direct exposure to cryptos was highly speculative. According to them, bitcoin’s recent decline from its record November high of $1000 in November 2017 ‘has undermined two common defenses of this asset class.
UBS reports: “First, it provides an effective form for diversification from traditional financial asset equities… Second, it is becoming harder to see cryptos in a form of digital gold’ that provides protection from elevated inflation.
Although it is true that exposure to crypto assets directly is highly speculative and risky, UBS analysts stressed that this does not mean that investors cannot benefit from the technology behind digital assets. They said:
There are many possible uses for this technology, from healthcare and financial services to luxury goods. This could lead to an increase in global GDP of USD 1 trillion over the next decade.
The UBS analysts stated that there are many ways for investors to access this potential without having to worry about the regulatory and high volatility of bitcoin and other cryptos.
Analysts suggested that the first strategy is to invest in companies building the infrastructure necessary for crypto ecosystem. They cited that they will likely benefit from more widespread adoption of distributed ledger technology (DLT).
UBS analysts stated that DLT applications are expected to grow in popularity. This will require additional hardware, such as application-specific integrated circuits (ASICs), processors and graphics processing units. Software companies and data center-related businesses are also key enablers.
The UBS analysts also noted that:
We believe that platform companies who can adopt DLT-based apps offer a greater opportunity.
They stated that technology will be increasingly used in the next 5-10 year. This means they see potential for new product categories and services, savings through the use of technology, possibly lower prices and overall improvements in business efficiency.
The UBS report concluded that these companies are from different industries such as internet, fintech and software. They can also use digital asset technology to offer a wide range of services including payments, trade finance and custodianship.
UBS warned in January of a crypto-winter amid Fed rate rises and regulatory expectations. Analysts warned that widespread cryptocurrency speculation would ‘inevitably call for closer oversight to protect consumers’ and protect financial stability’.