A crypto market crash doesn’t have to fill us with dread

Over the past 48 hours, all eyes have been on the crypto industry, trying to assess the aftershocks from the fall of Terra. It is a “Black Swan” event that we hope never happens, but this is a learning curve, albeit a painful one, for governments, investors, and, most importantly,  crypto companies. We need to keep our guard up all the time.     

A major oversight in this particular incident was the lack of regulation of stablecoins. I believe regulation in the industry is imperative to safeguard the interests of all stakeholders across the board. 

In the financial markets, or any industry for that matter, such events are perceived negatively. Still, history shows us that these instances are also a pivotal point of positive systemic change. I believe the same process will apply to this occurrence. 

• Cryptocurrencies have their ‘Lehman brothers moment’

In the UAE, we are blessed with a regulatory framework that allows the crypto industry to thrive and, in equal measure, protects investors. Given what has happened, how do we view this in the UAE, especially since the country has made big strides in the past couple of months to position itself as the global hub of the crypto industry?   

As frightening as it was, there’s always something to learn and in my opinion, the more we learn, the better prepared we are to foresee such occurrences.

 

I don’t think the crash will harm crypto adoption in the long term; the market will eventually come back as we’ve seen after many falls

Ahmed Ismail

The market capitulation that happened is a sign that the crypto industry and specifically decentralised finance (DeFi) still has some way to go before mainstream adoption. DeFi is volatile and requires better regulation, and volatility is a sign that liquidity is still fragmented.  

Crypto markets are illiquid and thinly traded. Liquidity is siloed, and crypto markets are extremely inefficient. They become especially vulnerable, and even the most stable cryptocurrencies such as Bitcoin and Ethereum become fragile and are in the spotlight when liquidity cannot move.

That being said, I don’t think it will really harm or affect crypto adoption in the long term; the market will eventually come back as we’ve seen after many falls, for example when the market halved following the outbreak of the coronavirus pandemic. It eventually came back stronger – only eight weeks after. Markets always rise and fall.

Crypto will still form part of the mainstream economy in the medium to long term. The fact that governments around the world are looking to regulate or stymie the crypto industry should be sufficient indication that crypto is here to stay, despite the obstacles.   

Finally, investors that lost money won’t transact as much in the short term, but as crypto adoption will inevitably grow and the markets stabilise, investors will want to make the most of crypto opportunities. 

If we look at UAE specifically, it’s worth mentioning that the regulatory framework for crypto is robust. The UAE Cabinet has a strategy to ensure the digital economy will contribute 20 percent to the gross non-oil national economy in the coming years. Since that directive was announced, we have witnessed the UAE making a huge push in developing world-class infrastructure and regulatory environment for crypto firms to thrive and call the UAE home. 

In Abu Dhabi, the Financial Services Regulatory Authority (FSRA) has had a fully-fledged and comprehensive crypto regulatory regime since 2018 and in Dubai we saw the Dubai Multi Commodities Centre, the Securities and Commodities Authority, and the Dubai International Financial Centre set up similar regimes, working closely with crypto firms to help create a safe, exacting, and transparent ecosystem.

Ahmed Ismail is the president and CEO of FLUID, an AI-based smart order routing protocol and cross-chain liquidity aggregator