Gulf asset managers remain wary of resurgent bitcoin

May 16, 2024

A woman using a Bitcoin ATM in Hong Kong. The Mena region accounts for 7% of global cryptocurrency volumes — A woman using a Bitcoin ATM in Hong Kong. Mena accounts for 7% of global cryptocurrency volumes

Pension and wealth funds still cautious
Cryptocurrency is up 54% this year
Investor demand could bring change

Gulf asset managers and institutional investors remain reluctant to invest in bitcoin, despite the cryptocurrency’s resurgence over the past year.

The Middle East and North Africa accounted for 7 percent – or $390 million – of global crypto volumes in the 12 months to June 30, 2023, according to Chainalysis.

Turkey made up nearly half, while Saudi Arabia and the UAE combined represented about $50 million. Yet retail investors conducted most of this trading.

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“UAE regulators have been quick to act and are extremely supportive of the crypto industry,” said a senior banker based in the Gulf who spoke on condition of anonymity.

“But Gulf institutional investors such as sovereign wealth funds and other government-related pension funds are still wary of stepping into the crypto market in any meaningful way.

“Bitcoin remains, for now, predominantly an asset for retail investors.”

Nine Blocks Capital Management is Dubai’s first licensed crypto hedge fund. Only 5 percent of its $150 million in assets under management is from Middle East investors.

“There’s often a perception that it’s very easy to raise money from the Middle East – it’s not that simple,” said Henri Arslanian, Nine Blocks’ co-founder.

“The UAE is a great place to set up a crypto business but while there’s been a lot of interest from institutional investors, it hasn’t been as [much] as many would have thought.”

Institutions seem to be missing out. Bitcoin hit a record high of nearly $74,000 in mid-March. It has now retreated to about $64,900, but this still leaves it up 54 percent in 2024.

This surge coincides with the US market regulator in January approving spot – immediately tradeable – bitcoin exchange traded funds (ETFs).

In April, bitcoin mining underwent its fourth so-called halving, a feature of its algorithmic programming that slows production. Further halvings will occur until all 21 million bitcoins are mined. The first three – in 2012, 2016 and 2020 – eventually sparked steep rallies in bitcoin’s price.

In family offices, investment managers “tend to be quite conservative”, said Arslanian.

“They'd rather invest in something they know or there's no career risk – that’s way easier to understand than go through the effort of trying to understand crypto.”

Nevertheless, he predicts that regional asset managers, banks and brokerages will have crypto trading departments within the next two years because of investor demand.

Sam Bankman-Fried outside a Manhattan court. The FTX founder is now serving 25 years for fraud, but bitcoin has survived this and other crypto scandals

Bitcoin has proven its robustness in its 15 years of existence. Few so-called altcoins have survived in any meaningful sense and most trade far below their peak values after various scandals rattled the crypto industry.

These include the multibillion-dollar collapse of the Terra-Luna coin in 2022 and Sam Bankman-Fried’s 25-year prison sentence for various frauds relating to his crypto trading platform FTX.

Bitcoin’s meteoric price rise – from trading at BTC10,000 for two takeaway pizzas in 2010 – coincides with prolonged bouts of quantitative easing, in which central banks such as the Federal Reserve printed money to buy government bonds in response to first the global financial crisis and then the Covid-19 pandemic.

Among bitcoin advocates, this increase in the supply of fiat currencies – which are not backed by physical assets such as gold – should cause their purchasing power to decline and increase the value of finite assets.