Bitcoin is not ready to go mainstream for these 3 reasons, the world's largest wealth manager warns
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Bitcoin has surged more than 20% this week after Tesla disclosed that it purchased $1.5 billion worth of the cryptocurrency in January.
Tesla's bitcoin move seems to have opened the floodgates for more corporations to adopt the popular cryptocurrency as a reserve on their balance sheets.
RBC suggested that Apple could be the next big corporation to adopt bitcoin, and the CFO of Twitter told CNBC on Wednesday that it too could buy bitcoin.In a note on Tuesday, UBS' Mark Haefele gave these three reasons why investors should practice caution before speculating in bitcoin.
Read More: GOLDMAN SACHS: Buy these 26 'best of both worlds' stocks set to soar with economic recovery even if interest rates stay low"The basic function of a modern currency is to store value; by contrast, the diminishing incremental supply of bitcoin has made 'bubbling' one of its basic functions," Haefele said.
He added: "If a corporate were to increase its euro holdings or that of any other major currency, we wouldn't see a move of this magnitude. That a single individual can have such an impact on crypto prices undermines concerns about low liquidity and high volatility. Far from boosting the credibility of crypto, we think this undercuts it."He continued: "We also note unresolved regulatory risks, with the US Treasury's Janet Yellen last month calling for efforts to 'curtail' cryptos, calls which may grow louder now that S&P 500 investors have involuntarily gained exposure to crypto volatility. We are also skeptical that mega-cap platforms within-house payment ecosystems and strong global networks would cede their infrastructure to volatile, and regulatorily risky, crypto networks."
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Instead of directly buying bitcoin, Haefele recommends investors consider fintech stocks, "an emerging sector we think might yield 'the next big thing' for investors."
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