Bitcoin Has ‘Unquantifiable Risk’: UBS Investment Chief
The world’s largest wealth manager says it does not plan to invest in bitcoin or other crypto assets due to the absence of government oversight and the lack of a clear exit strategy.
2017 has been a watershed year for bitcoin, and it will likely be remembered as the tipping point that turned bitcoin’s reputation from a curious experiment — utilized primarily by nerds and anti-government activists — into a mainstream financial instrument that, according to Pantera Capital CEO Dan Morehead, will be an “expected” component of a well-rounded financial portfolio.
However, UBS Group AG, the world’s largest wealth manager, does not intend to bring cryptocurrencies into its investment portfolio. Speaking with Bloomberg, Mark Haefele — chief investment officer of UBS — said that the ecosystem’s lack of government oversight presents investors with an “unquantifiable risk”:
“All it would take would be one terrorist incident in the U.S. funded by bitcoin for the U.S. regulator to much more seriously step in and take action,” he said. “That’s a risk, an unquantifiable risk, bitcoin has that another currency doesn’t.”
Moreover, questioning that purchases of cryptocurrency should even be classified as investments, he stated that firms have no way to develop a clear exit strategy to secure profits.
“The thing that always strikes me about these, quote unquote, investments is not really when you would get into it but when you would get out of it,” Haefele said. “So how do you know when to get out of a bitcoin investment?”
Even discounting those factors, Haefele said bitcoin does not even appear on UBS’s investment radar. Throwing shade on the significant growth experienced by the ecosystem this year, he stated that the approximately $230 billion cryptocurrency market cap was “not even the size of some of the smaller currencies” that UBS would include in its portfolio.
But for an asset that is not on the firm’s radar, UBS discusses it quite a bit. In the past month alone, at least three UBS executives and analysts have criticized the burgeoning cryptocurrency industry. Disputing reports by Goldman Sachs and other firms that indicate investors are interested in cryptocurrency, UBS CEO Sergio Ermotti said that he doesn’t think “there’s any meaningful desire by high net worth individuals to take big bets” on bitcoin. Soon after, UBS published a whitepaper that described bitcoin as a “speculative bubble,” and a firm economist stated that the impending launch of bitcoin futures contracts reminded him of the tulip bubble in Holland during the 17th century.
Of course, UBS’s bearish statements on bitcoin must be viewed within context. Recognizing the potential of blockchain technology, the firm has started its own digital currency project. The “utility settlement coin” is designed to help financial institutions across the globe swap value more efficiently than using cash transfers. UBS has been working on the project since 2015, and it has planned a limited rollout for 2018.