‘Gulf will lead digital currency world’

Saudi Arabia and UAE embrace blockchain despite a crash in coin prices. (AFP)
Updated 23 March 2019

‘Gulf will lead digital currency world’

  • Saudi Arabia and the UAE have agreed to pilot a shared digital currency for cross-border bank transactions
  • Bitcoin prices have plummeted by more than 50 percent in the last year

LONDON: The Gulf is overtaking Asia as the global leader in cryptocurrencies, as countries such as Saudi Arabia and the UAE embrace blockchain technology despite the crash in coin prices, according to the cofounders of a new digital-currency exchange.
Bitcoin prices have plummeted by more than 50 percent in the last year, from a high of $9,683.54 on May 4, 2018 to under $4,000 on Thursday afternoon. Ethereum, another prominent digital currency, lost 83 percent of its value over the same period.
That has not deterred the founders of the Abu Dhabi-based Hayvn, who believe digital currencies are still in their infancy and are yet to benefit from big bucks being pumped in by institutional investors. A move by Saudi Arabia and the UAE to pilot a shared digital currency for cross-border bank transactions also points to the longer-term potential of cryptocurrencies, said Hayvn cofounders Ahmed Ismail and Christopher Flinos.
“We see the Gulf leading digital currencies going forward, globally,” said Flinos. “It started in Asia, and we now see the GCC taking over from Asia as the global leader in digital currencies and their integration into the financial system.”
Flinos said there was an appetite for cryptocurrencies among big regional investors, but that they lack a safe and secure platform on which to trade. 
“Saudi Arabia is one of the biggest cryptocurrency markets, potentially, within the region,” he said. “Middle Eastern high-net-worth individuals generally have a higher risk tolerance … they like equities, they are used to volatility. They’re not afraid of new things, they’re not afraid of chasing yield.”
Flinos and business partner Ismail, who met while working at Merrill Lynch in the mid 2000s, plan to launch Hayvn soon and have had discussions with the Abu Dhabi Global Market (ADGM) authority about regulating the platform. The executives say that regulation, along with cryptographic security provided by a company called nCipher, will make Hayvn stand out from other global exchanges, some of which have been hit by high-profile cyberattacks. The Tokyo-based Mt. Gox exchange, notably, filed for bankruptcy in 2014 after losing some 850,000 bitcoins — then worth about $500 million — and $28 million in cash from its bank accounts.

 

The Hayvn exchange will be aimed at institutional investors with more than $500,000 of investable funds, such as hedge funds, private banks and high-net-worth individuals. Its founders have not yet disclosed which cryptocurrencies it will trade, but confirmed the majors will be there. They have also held initial discussions about being an exchange for “intra-GCC trading coins” of the sort being piloted by Saudi Arabia and the UAE.
Despite the roller-coaster ride in crypto prices, Hayvn cofounder Ismail said that there is a gap in the market for a well-regulated and secure exchange. 
“Cryptocurrency exchanges right now, globally, are effectively just casinos,” he said. “We saw that (in) a lot of the exchanges around the world, it was pretty much the Wild West … there was a lot of price manipulation, there was a lot of money laundering, institutional money was still not convinced.
“We saw what was going on in the digital currency market. And we saw this massive gaping hole.” 
Ismail described the ADGM’s regulatory framework as “rigorous” and said the planned security on the trading platform means it is “completely unhackable.”
“We’re not simply an exchange — retail exchanges are a dime a dozen, it’s very easy to set one up,” he said, pointing to the research the company plans to conduct with a London-based university.
Ismail acknowledged the crash in prices of bitcoin and ethereum, but said that it was still early days for cryptocurrencies, which until now have been traded mainly by small individual investors. 
“The reason there has been massive amounts of volatility in (bitcoin) or ethereum or any of the large coins is the fact that it’s been pretty much retail (investors),” he said. “Institutional money is still waiting on the sidelines to get into cryptocurrency. It’s moving. There are paradigm shifts that are happening right now in the whole cryptocurrency world. But it’s still not there yet. We’re still at the very very beginning of the digital currency revolution.” 
So will cryptocurrency prices recover in the short term?
“Who knows? It may be overvalued, it may be undervalued,” said Ismail. 
“We ultimately don’t care. We’re looking at this as a real asset class that has long-term probability. It might not be bitcoin, it might be another cryptocurrency that’s going to emerge in the short to medium term.”

FASTFACTS

Bitcoin prices have lost about half their value over the past year.


WEEKLY ENERGY RECAP: Keeping things in balance

Updated 08 December 2019

WEEKLY ENERGY RECAP: Keeping things in balance

  • The over-compliance will result in cuts of 1.7 million bpd

Brent crude rose above $64 per barrel after OPEC+ producers unanimously agreed to deepen output cuts by 503,000 barrels per day (bpd) to a total 1.7 million bpd till the end of the first quarter of 2020.

The breakdown is that OPEC producers are due to cut 372,000 bpd and non-OPEC producers to cut 131,000 bpd.

Current market dynamics led to this decision as oil price-positive news outweighed more bearish developments in the US-China trade narrative that has weighed on oil prices throughout the year, with US crude exports rising to a record 3.4 million bpd in October versus 3.1 million bpd in September.

OPEC November crude oil output levels at 29.8 million bpd show that producers were already overcomplying with its current 1.2 million bpd output cuts deal by around 400,000 bpd. 

The over-compliance will result in cuts of 1.7 million bpd, especially when Saudi Arabia continues to voluntarily cut more than its share.

This makes the agreed 1.7 million bpd output cuts pragmatic since it won’t taken any barrels out of the market.

It isn’t a matter of OPEC making room in the market for other additional supplies from non-OPEC sources, as OPEC barrels can’t be easily replaced.

Instead, this is about avoiding any oversupply that might damage the global supply-demand balance.

Saudi energy minister Prince Abdulaziz bin Salman has effectively kept his promise and managed to smoothly forge a consensus among OPEC and non-OPEC producers.

He has also successfully managed the 24-country coalition of OPEC+ including Russia in reaching an agreement.

Despite suggestions otherwise in recent coverage of the Vienna meeting, the deeper cuts announced on Friday have nothing to do with the Aramco IPO. Let’s remember this meeting was scheduled six months ago and the IPO has been in the works for much longer.

The Aramco share sale did not target a specific oil price. If that was a motivating factor it could easily have chosen another time.