Major cryptocurrency coins have recorded extended declines recently – with market cap falling below $1 trillion for the first time since January 2021. Bitcoin, the largest cryptocurrency by market value, has dropped by around 65 percent, tanking for nearly 12 weeks.
It seems the “crypto winter” has come, with investors, analysts, regulators and other industry players all over the world ramping up discussions on the industry’s frigid blows.
Has the breeze reached the scorching shores of the Gulf?
According to Axiory, a global brokerage firm, MENA investors generally tend to be more cautious in their approach to investing, shielding them from massive impact of the recent downturn in crypto valuation.
“MENA investors are very sensitive to volatility and tend to enquire more in regard to the instruments they are considering, especially when it comes to assets which are new, and are not in the pool of their preferred ones,” Axiory CEO Roberto d’Ambrosio, told Arabian Business.
As for the rest of the world, this kind of risk appetite may have contributed to the crypto crash – investors went on a selling spree as inflation bit many economies across the globe. Like the crypto market, traditional stock markets have also been affected by high inflation with S&P500 and Nasdaq indices plunging more than 20 percent since the beginning of the year.
According to d’Ambrosio, this increased correlation between the crypto and traditional markets has created a “rush to convert Crypto to Fiat, creating an enormous selling pressure on all of them.”
Asked if “buying the dip” makes sense for investors right now, he said: “As I believe that the correlation with the risky assets in the ‘traditional’ markets like stocks will continue, I would be cautious in starting to buy aggressively right now.”
The Axiory CEO said they view the inflation issue as “not episodical, but systemic in my opinion. Therefore, the interest rates will need to rise and there is no more cushion to inundate the market with liquidity, unless we want to kick the can down the road once more and create an issue that would be even more difficult to manage.”
The big picture of blockchain technology
Despite the short-term horror of investing in a risky asset, many experts are still optimistic about the role blockchain plays in financial markets, calling for investors to truly see the “value” of the infrastructure.
One blockchain advocate in Dubai said the “true value of cryptocurrency is when it’s being used on its own as a means of payment, or as a means of storing wealth or whatever it is used for.”
“As long as we keep comparing and referencing it to Fiat money, that’s where the issue is. The bigger issue here today is educating people about the true power of blockchain and what comes with the usage of cryptocurrencies,” Abdullah Ghandour, founder of decentralised finance (DeFi) company Empire Token, explained.
He said current conversations about trading crypto coins tend to be problematic, with many people lacking real understanding of blockchain technology and its potential in mass adoption.
“You need to know what you’re doing. You need to invest in certain way to make money, but you can’t just buy and sell randomly, checking your wallet every five minutes,” Ghandour added.
This could also be a lesson derived from the infamous Terra-Luna case. A New York Times report described it as “case study in crypto hype.” Many investors backed the crypto ecosystem giving early investors the gains they expected, but as soon as market volatility hit, Both TerraUSD and Luna lost almost all its value – leaving investors with insurmountable losses.
This recent scandal brought challenges to the general credibility of cryptocurrencies, and many experts attribute the valuation drop to investors becoming smarter in their decisions.
On the other hand, it has also sparked new conversations about the ongoing push for governments to embrace decentralised finance and explore ways to regulate the industry.
Follow us on
