Investors shift focus to cryptos as confidence grows

A FLAWLESS and reliable crypto regulatory framework will attract more investment into the digital assets and diversify economies across the Middle East as investors continue to pump their money into products related to cryptocurrencies, fintech and blockchain businesses, experts say.

Analysts, executives and latest research reports said institutional investors in the UAE are increasingly confident in the outlook for digital assets and believe they should play a significant role in diversified portfolios. They said a clear regulatory framework is need of the hour and attract more investment in digital assets across the Middle East and North Africa region.

Christian Borel, senior executive at SEBA Bank in Mena, said the crypto regulatory landscape in the Mena region and the UAE has shown significant evolution over the recent years.

“As governments recognise the potential of blockchain and digital currencies to diversify economies and attract investment, there’s a growing emphasis on creating clear regulatory frameworks. Proactive regulatory policies and an effort to foster innovation have positioned the UAE as a hub for fintech and blockchain businesses,” Borel told BTR.

As the landscape matures, he said it will be crucial for the regulator to strike a balance between encouraging innovation and ensuring safety and security of users and investors.

“The evolvement of VARA, DMCC, RAK DAO, and ADGM, which provide economic free zones have also helped to embed a framework for crypto and blockchain companies to effectively operate in,” he said.

RISING OPTIMISM

A latest study, conducted by London-based Nickel Digital Asset Management, found that 66 per cent of institutional investors and wealth managers in the UAE believe investment opportunities in the sector are very attractive on a 12-month view with 27 per cent saying they are quite attractive. That confidence is translating into an increasing recognition of the importance of digital assets as a diversifier in well-designed investment portfolios.

The study with institutional investors and wealth managers in the UAE, who collectively manage around $936 billion in assets, found growing confidence in regulators is supporting investment. Around 60 per cent believe regulators are very committed to introducing robust regulation while a further 33 per cent believe they are quite committed.

“Institutional investors and wealth managers in the UAE are increasingly confident about the short-term and long-term director of the crypto and digital assets sector and that is translating into a recognition of the diversification benefits offered by digital assets in portfolio construction,” Anatoly Crachilov, CEO and founding partner at Nickel Digital, said.

Samer Hasn, market analyst and part of the Research Team at XS.com, said that the positive sentiment in the cryptocurrency market in general is still present, as investors continue to pump their money into products related to cryptocurrencies, although not at the level hoped for.

“In my opinion, the continued uncertainty surrounding the regulatory and legislative environment regulating this complex market, especially in the US, will constitute an obstacle to sustainable growth and widespread adoption of this technology. I also believe that any rises that may follow any positive news or events will be very short-lived,” he said.

UAE'S PULL FACTOR

Borel said the promise of high returns, decentralisation, and the potential for financial innovation are three important pull factors attracting investors and inflows to the UAE market.

“Investors are enticed by the opportunities presented by an emerging market with significant growth potential, while blockchain-based finance and DeFi offer alternative options to the constraints of the traditional finance system. These alternative options are important for attracting both institutional and professional investors to diversify their wealth,” he said.

CRYPTO-FOCUSED JURISDICTIONS

Borel said jurisdictions that establish a clear, robust, and adaptive regulatory framework for crypto will be the standout markets that attract and retain the biggest players in the market. “This will help ensure investor protection while promoting innovation,” he said.

“Prioritising infrastructure, offering tax incentives, and keeping a continuous dialogue between stakeholders and regulators are important steps for any jurisdiction looking to solidify a position as a leading global hub for digital assets and blockchain innovation. An accessible market for foreign applicants, such as the UAE’s golden visa scheme also goes a long way to attracting the talent required by these big crypto market players,” he added.

BITCOIN, CRYPTOS OUTLOOK

Borel said the outlook for Bitcoin in any given period is influenced by a combination of macroeconomic factors, regulatory developments, technological advancements, and market sentiment. “In the past, Bitcoin has historically outperformed other asset classes during periods of extreme volatility and liquidity, something which has been lacking for most of the year,” he said.

The optimism in cryptocurrencies is feeding through into longer-term support for Bitcoin growth – 80 per cent believe Bitcoin will hit the landmark $100,000 valuation with 40 per cent predicting the price will be achieved within five years, according to Nickel’s study, which was conducted when Bitcoin was around $30,000 and Ethereum around $1,900.

No investors questioned believe either Bitcoin’s or Ethereum’s price will end the year below these levels, the study says.

“I believe that any predictions, especially long-term ones, that may indicate the possibility of any of the cryptocurrencies achieving fantastic gains, such as talk about the possibility of Bitcoin reaching the level of $100,000, must be responsible and based on sufficient objective evidence and systematic forecasting practices. I don't really see that in any of those forecasts,” Hasn of XS.com said.

ETHEREUM GAINS

Another international research from the leading blockchain-based machine learning business GNY.io Limited showed that retail crypto traders are increasing their focus on ethereum as its price continues to climb.

GNY, which has developed the AI-powered report, noticed that 76 per cent of the non-professional traders trading at least $5,000 a month on cryptocurrencies it questioned in the UK, US, Germany, Brazil, Hong Kong, Singapore, the UAE and South Africa.

“Ethereum is the bedrock of many portfolios of crypto traders, and our research shows that many are looking to increase their allocation to this cryptocurrency as they expect the rally in its price to continue. However, there is so much ‘noise’ on ethereum and other digital assets that it can be difficult to find reliable and useful data on which to base trading strategies,” according to Cosmas Wong, CEO, GNY.

BITCOIN STILL HAS A LONG WAY TO GO TO HIT ALL-TIME HIGH

BITCOIN, the world’s oldest cryptocurrency, entered into 2024 with bullish momentum and then consolidated its gains during first month of the year.

Bitcoin, which launched its journey in 2009, started the year on high note as it breached the $45,000 mark for the first time since April 2022 due to market expectations that the first spot Bitcoin ETF might get approved. Heading into 2024, Bitcoin prices have sustained an upward trend, but still it has a long way to go to get back to its all-time high of nearly $69,000 in November 2021.

The price of Bitcoin dropped to a level of $38,555 recently, then rose again above the crucial $40,000 level on January 24, starting trading at $42,250 on January 29. This decline led to the liquidation of $55.52 million in long-term positions and $27.42 million in short-term positions, according to a market expert.

“I believe that last week's deep decline in Bitcoin prices triggered massive liquidation operations in the entire cryptocurrency market. From my perspective, this drop was a result of the GBTC (Grayscale Bitcoin Trust) redemption through the bankrupt cryptocurrency exchange FTX. The approval of the Securities and Exchange Commission for an immediate Bitcoin ETF fuelled the decline in Bitcoin prices, contrary to expectations,” said Rania Gule, market analyst at XS.com.

“This is because bankrupt companies like FTX recovered the value of their GBTC. Bankrupt companies own these stocks directly tied to the actions of the CEO of the Cryptocurrency group, Barry Silbert, who is the CEO of the parent company Grayscale. In an attempt to boost managed assets in the giant company, the CEO encouraged companies to use GBTC instead of Bitcoin. This led these companies to liquidate their GBTC assets and withdraw their capital, causing prices to fall,” she said.

It's worth noting that Barry Silbert is currently under investigation by several regulatory bodies and law enforcement agencies in the United States. The price of Bitcoin is likely to decline sharply if large-scale liquidations from GBTC occur. Another factor supporting the decline in Bitcoin price is profit-taking activity by whales.

In the short term, Bitcoin prices may find some positive support on January 29 as Google updates its scheduled policy for cryptocurrency and related advertisements. This update is expected to see the appearance of some crypto asset products on the search engine's advertising board. Bitcoin ETFs are likely to be displayed, taking into account the fulfillment of selection criteria.

Since the company handles nearly 100,000 searches per second, representing about 90 per cent of the world's population, awareness of the Bitcoin ETF fund is expected to significantly increase.

“I expect this update to allow ads from "advertisers offering Cryptocurrency Coin Trust targeting the United States" to increase access to this category of investment products, potentially causing significant price movements,” Gule said.

— muzaffarrizvi@khaleejtimes.com

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