‘Gulf will lead digital currency world’

Saudi Arabia and UAE embrace blockchain despite a crash in coin prices.

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.”