Bitcoin is currently cruising past the $40,000 mark, at its highest-ever valuation to date. This development comes a unique time in recent history, characterised by the global pandemic, geopolitical shifts, ambiguities in the financial markets and increased digital transformation. Naturally, investors are interpreting correlations, hoping to demystify the bullish crypto market and gauge the direction in which it is headed.
In order to get an insider's view, Business & Technology Review spoke with Khurram Shroff, the Dubai-based Chairman of the IBC Group and one of the region's largest "HODLers", with an estimated one million Bitcoins. Khurram's association with Bitcoin, the original cryptocurrency, dates back to 2009, when it was being traded for merely $0.0008 per coin, following the 2008 recession and the housing market crash. In the years since then, Bitcoin, which was once a relatively underground phenomenon, has gone through many ups and downs. Till finally, it has taken residence under the spotlight in world markets. So what better time than now, to ask one of the region's biggest crypto players what he makes of the rise of Bitcoin and other cryptocurrencies? And what does the future hold for this 'digital gold', in his opinion?
Can you give us a lowdown on the current bull run of Bitcoin? Does it carry a relapse risk?
Bitcoin has witnessed its fair share of ups and downs since 2010. But for crypto stalwarts like me, who saw the big picture, the current bull run is not in the least bit surprising. Bitcoin's meteoric rise is primarily owed to its inherent characteristics. Creator Satoshi Nakamoto designed it to mimic gold by inducing artificial scarcity. But unlike gold, which continues to be mined at an average 2,750 tonnes per year, Bitcoin's supply was capped at 21 million. So, it became a supply-constrained asset and, by design, deflationary. Nakamoto hardcoded the Blockchain with a halving event, which reduces the reward per block by half, every four years. There have been three such events so far, and the last one was held in May 2020.
In my experience, the 18-month period following the halving event will be bullish. For instance, the halving event in 2016 paved the way for Bitcoin's bull run in 2017. It is, therefore, rational to expect a similar recurrence in 2021. However, unlike the 2017 run which was driven largely by retail interest, the current bull run is driven by diversified market forces. This is why I do not expect a relapse.
What do you mean by diversified market forces, and how are they impacting the crypto market?
The pandemic and its knock-on impact on the economy encouraged institutional investors to take refuge in hedge instruments that can store value through inflation. As central banks increased money supply to encourage public spending and aid recovery, government and institutional debts continued to mount and fiat currencies have been feeling the pressure ever since. This created a sense of urgency among traditional investors, who resorted to hedging. In fact, this explains why the bullion markets witnessed significant gains in recent months as well. Gold and silver have historically been the go-to hedge instruments. But institutional investors saw gold-esque benefits, plus some added unique advantages in the crypto market, which saw uptake of Bitcoin, Ethereum and other cryptocurrencies.
How can Bitcoin disrupt a coveted, traditional asset class like gold and other precious metals?
Gold's reputation hinges on its scarcity and a public consensus over its preciousness. Bitcoin is not only scarce, but is fixed, highly portable and divisible. And the distributed-consensus algorithms in the Blockchain ensure the highest level of transparency. Such added benefits have incentivised reputed market players to sell their gold-exchange traded funds for stakes in cryptocurrencies in recent weeks. Inadequacies in the bullion markets, including the lack of transparency, are negatively impacting their viability in the digital economy. On the other hand, cryptocurrencies can be traded using handheld devices, in the comfort of one's own home. In time, I wouldn't be surprised if Bitcoin replaces gold as the most coveted hedge instrument and asset class.
If cryptocurrencies are poised to replace bullion, how will it impact the market capitalisation?
As things stand, the world's gold supply is valued at around $9 trillion. So, mathematically speaking, if Bitcoin were to match up to gold, each coin will have to rise to $500,000, or up 15 times from its current valuation. The corresponding estimation for Ethereum, the second largest cryptocurrency by market capitalisation, would be around $75,000 per ether. Taking into account that the entire crypto market had a nominal value only 10 years ago, it is not far-fetched to make such projections. It may take a year, or five, or even 10, but I believe it will get there, sooner or later.
Can you substantiate your claims through examples of institutional interest?
Bitcoin has had a promising run since its debut in Wall Street in 2017. But it wasn't until S&P Dow Jones Indices announced the debut of cryptocurrency indices this year that institutional interest spiked. This was accompanied by Citi and JP Morgan changing their sceptical stance and Paypal facilitating crypto transactions. Grayscale, one of the largest hedge funds in the US, currently holds over 2.6 per cent of circulating Bitcoin supply and 2 per cent of circulating ether supply.
The number of US financial advisors making allocations in crypto doubled in 2020. And even old-school billionaire investors like Stan Druckenmiller and Paul Tudor Jones bought into the crypto wave. This was possible due to the US Government's favourable policies towards mainstream crypto adoption, despite early reservations. Such tell-tale signs emerging from the US are often the early indicators of how global capital will be deployed in the near future. And a few dollar-pegged economies, particularly the UAE, have picked up on these signs and are devising favourable regulatory framework for crypto transactions.
How do you see the evolution of UAE's crypto market? Will it align with the nation's larger goals?
Cryptocurrencies provide a secure framework, a foolproof transaction mechanism and keep a verifiable digital ledger. The UAE leadership, known for its progressive and innovation-driven governance, has embraced Blockchain in a big way. As part of the Emirates Blockchain Strategy 2021, the UAE is adopting cryptographic, open-source technologies, and is on course to move 50 per cent of its transactions to Blockchain soon.
Blockchain, with inherent transparency and reliability, is conducive to people-centric governance and financial democratisation. These strengths will play a pivotal role in accelerating the UAE's transition into a knowledge-based economy. Going forward, the Blockchain policies of apex bodies like ADGM and DFSA will be crucial enablers of growth.
With vaccines on the way and signs of economic revival, where do you think Bitcoin and other cryptocurrencies will stand as asset classes?
Institutional interest and inflationary pressures will continue to drive demand for cryptocurrencies. Once the pandemic-induced situation abates and economic headwinds dampen, crypto valuation and adoption will be determined by market fundamentals. Investors will be inclined towards liquid markets, which tend to be smoother and easier to exit. Unlike precious metals, which can be both liquid and illiquid under different circumstances, Bitcoin is essentially a multifunctional, liquid asset, which can act as a store or value and a medium of exchange. Such unique capabilities will continue to act as a buoyant force, keeping the crypto market upbeat. My optimism also stems from cryptocurrencies' ability to adapt to the ever-evolving needs of the contemporary world, which was substantiated by recent developments in Ethereum 2.0.
How does Ethereum 2.0 fit within the post-pandemic paradigm?
The post-pandemic new normal is characterised by renewed focus on sustainability and eco-centric practices. This is at odds with the traditional Proof-of-Work mining model of Blockchain, which is energy intensive. In order to address this, Vitalik Buterin, the creator of Ethereum, has devised an energy-efficient Proof-of-Stake model for Ethereum 2.0, which doesn't require large server farms, making it more eco-friendly and sustainable. This is why I actively participated in the launch of Ethereum 2.0, and invested $10 million (around 20,000 ether stakes) through my IBC Group, helping the beacon chain for the launch go live. And true to my belief, more than $2.5 billion dollars - or 2.2 million Ether - has been staked on the Ethereum 2.0 deposit contract, as of now.
How would IBC Group like to position itself in the larger crypto market? Anything you are willing to share.
IBC Group is one of the earliest proponents of cryptocurrencies, and will continue to scale its footprint in the crypto market. We are invested in everything the market has to offer, and we currently hold over 4,000 different cryptocurrencies, which is a testament to our continued belief in its future. I would go as far saying that we have a spray-and-pray approach to cryptocurrencies.
Thanks to the current bull run, around 300 original members of the IBC Group, from 190 countries, retired on January 7, 2021 with a few million each, after cashing in on their Bitcoin holdings. This is a proud moment for our investors, employees and partners. And as the Founder, I can't ask for more.
About Khurram Shroff
Arab 'whale' Khurram Shroff, whose IBC group holds more than a million Bitcoin, has been an ardent champion of Blockchain and was also instrumental in the recent launch of Ethereum 2.0, through an investment of $10 million (around 20,000 Ether stakes). Khurram is an award winning global banking and finance leader, who has been featured in the prestigious list of the "Top100 Most Powerful and Influential Muslims in Great Britain and the World" by Power100. He is the Chairman of IBC Group, which is a substantial Global Real Estate and Tech investment company based in the UAE, as well as Chairman of Gallery Suites, which focuses on inspirational living with bespoke art collections in holiday home properties across Middle East and Asia.
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