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Crypto is ‘more like a Rolex than currency’

Dubai International Financial Centre hosted this year's Fintech Week Creative Commons
Dubai International Financial Centre hosted this year's Fintech Week
  • No fundamental model to price art or other investible assets
  • Cryptocurrency market slumped by $2 trillion since November

Crypto assets will not become currencies and global regulators should be concerned about the trillions of dollars lost in the cryptocurrency market, a senior investment executive at one of the UAE’s top financial institutions said yesterday.

A major sell-off in cryptocurrencies last month wiped over $200 billion of investor wealth from the market in a single day, and close to $400 billion globally over the last few weeks.

Overall the value of the cryptocurrency market is estimated to have slumped by more than $2 trillion since November, with the value of bitcoin – the world’s most valuable cryptocurrency – down by 70 percent.

Deepak Mehra, head of investments at Commercial Bank of Dubai (CBD), a bank listed on the Dubai Financial Market, said he has not seen “any great demand” for digital assets from the bank’s customer base. 

“Our view is that digital assets are alternative investment products, just like art would be, because the beauty of the art lies in the eyes of the beholder,” he told a panel at Dubai International Financial Centre’s Fintech Week.

“There is no fundamental model to price a piece of art or a luxury wristwatch like Rolex or wine, or other investible assets, so I think crypto assets are somewhere there.

“Will they ever become currencies? Very unlikely. Because, so far, they don’t show any characteristic of a currency, and a currency’s position in society is very different.

“It is to transmit monetary policy and ensure monetary policy and financial system stability, and that is done best by central banks rather than cryptocurrencies, [which I call] crypto assets.”

Roughly 90 percent of monetary authorities are exploring central bank digital currencies (CBDCs), according to the Bank for International Settlements (BIS), the global umbrella body for central banks, in the hope that it will equip them for the online world and fend off cryptocurrencies.

Though the idea for CBDCs comes from cryptocurrencies, CBDCs are not cryptocurrencies. 

CBDCs are digital tokens, similar to cryptocurrency, issued and controlled by a central bank. They are pegged to the value of a country’s fiat currency and are designed for stability and safety.

Mehra said cryptocurrencies “will have a place as an investible asset”, but that legal frameworks still have a long way to go.

“We think that the regulations need to evolve further before they really become investible assets,” he said. 

“Right now, they are in the realm of speculative assets and people have lost a lot of their savings in that.”

Contrary to widespread stories of overnight crypto millionaires, as of February this year more than half of bitcoin investors are in the red, according to a study by cryptocurrency investment firm 21Shares.

Bitcoin, the world’s most valuable cryptocurrency, has more than halved since hitting its all-time high of $69,000 in November last year.

Last week, American exchange Coinbase Global said that it was cutting around 1,100 jobs, or 18 percent of its workforce.

Closer to home, Middle Eastern crypto exchange BitOasis laid off nine employees – roughly five percent of its staff in the UAE and Jordan.

In February this year, Dubai enacted the Dubai Virtual Asset Regulation Law and established the Dubai Virtual Assets Regulatory Authority (VARA), which aims to create an advanced legal framework to protect investors and provide international standards for virtual asset industry governance that promotes responsible business growth in the emirate.

The Middle East received $271.7 billion worth of cryptocurrency between July 2020 and June 2021, which represents 6.6 percent of global activity, according to Chainalysis data.

“I think regulators right now should be very worried about the two trillion dollars that has been wiped out of the cryptocurrency world,” Mehra said.

“[The market] was all of 2.7 trillion [and] 1.9 trillion of that has been wiped out completely. Who has lost that money?”

Mehra added that many of the crypto losers were likely “all the guys who thought they will become rich overnight” and had a “something from nothing sort of mentality” unlike his bank’s customers.

“I think our customers are long-term investors,” he said.

“They like to invest in value. They’re investing not for themselves but for generations to come.”

A 2022 YouGov study found that two thirds of UAE residents (67 percent) are interested in investing in cryptocurrencies within the next five years. 

Singapore’s central bank, the Monetary Authority of Singapore, said on Tuesday that cryptocurrencies have “no fundamental value”.

Earlier this week, France central bank governor François Villeroy de Galhau told the World Economic Forum that the recent meltdown in the cryptocurrency market has pushed people to have trust in banks more than digital currencies.

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