Bitcoin Surges Amid Pro-Crypto Stance from Trump
Bitcoin has hit new record highs, driven by investors reacting to President-elect Donald Trump’s pro-crypto stance. Since November 4, Bitcoin has surged over 30%, fueled by Trump’s campaign promises, including the creation of a strategic Bitcoin reserve and a pro-crypto Congress. This surge underscores the increasing optimism in the crypto market, but UBS remains cautious about the overall sustainability of crypto assets in the long run. And still we see equities are better supported despite this Crypto Rally.
UBS Cautions on Crypto’s Volatility
Despite the excitement surrounding Bitcoin and other cryptocurrencies, UBS strategists stress that cryptocurrencies are speculative investments rather than stable elements for diversified portfolios. The firm is skeptical about the real-world applications of crypto and warns that incorporating digital assets into portfolios introduces significant volatility. This reinforces UBS’s view that equities are better supported in the current market environment.
Bitcoin’s Correlation with Equities
According to UBS, Bitcoin has a positive 0.31 correlation with global equities, which suggests it often moves in sync with stock markets. However, Bitcoin’s annualized volatility of 78.8% makes its price fluctuations much more pronounced. UBS analysts highlight that Bitcoin has faced three major drawdowns of more than 70% since 2014, with recovery periods averaging around three years. This adds further weight to their stance that equities are better supported and less volatile than cryptocurrencies.
UBS Prefers Equities Over Crypto
UBS remains optimistic about global and US equities, which they believe are better supported by strong economic growth and favorable macro conditions. With S&P 500 earnings expected to grow by 11% in 2024 and 8% in 2025, UBS sees a solid foundation for further gains. The Federal Reserve’s easing monetary policy, including expected rate cuts, is also expected to benefit equities. UBS continues to hold a positive view on stocks, reinforcing their belief that equities are better supported than cryptocurrencies in the near term.
AI Sector Driving Equity Growth
The AI sector remains a key growth driver within equities. Despite potential volatility from tech export controls and tariffs, UBS underscores Big Tech’s commitment to AI investment, leading them to revise earnings growth forecasts for the sector upwards. UBS advises that investors take advantage of potential short-term volatility to increase exposure to AI, which remains one of the most promising areas for equity growth. This continued focus on AI contributes to the view that equities are better supported than the speculative crypto market.
Conclusion: Equities Still a Strong Bet
While cryptocurrencies, particularly Bitcoin, have surged in recent weeks, UBS’s outlook suggests that equities are better supported as a long-term investment. With a favorable economic backdrop, Fed rate cuts, and growth drivers like AI, the equity market continues to present a more stable and rewarding opportunity compared to the volatile crypto market.
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