For many UAE investors, there is only one question - 'When can I cash out?'. By the looks of it, this won't happen soon as cryptocurrencies start the week with more drops. Image Credit: Unsplash/Jievani Weerasinghe

Dubai: UAE investors holding Bitcoin and other crypto assets will just have to wait longer for a chance to cut their losses and make an exit. Over a few days, Bitcoin prices did seem good enough to push past $25,000 – or at the least stay at those levels. That’s not how it’s been panning out.

Early Monday (August 22), the main cryptocurrency is down by $43-$47 to $21,473 and looks primed for some more bleeding.

All of which is putting an investor like Shehnaz Anwar on the edge. “It’s been quite frustrating to not be able to withdraw as these are my life savings. It appeared ad hoc when the trading platform imposed arbitrary limits.

“It is even more upsetting when the price levels are significantly different from what is being shown on screen. With this level of chaos, it has dented my confidence. I plan to exit as soon as some stability returns to the market.”

But when would that be? Each time, there’s some hope of a turnaround, the Fed and the markets soon snuff out Bitcoin holders’ hopes. “Currently, the vast majority of those holding bought in at elevated levels, mostly at the $30k-$35k levels,” said a trader. “The way we see it, if Bitcoin closes anywhere near $30k, there will be quite a few investor exits.”

In the year-to-date, Bitcoin is down over 50 per cent. Compare that with gold, which is lower by just over 4 per cent. The S&P 500 is down 11.3 per cent.

In many emerging markets, there are more investors in crypto than they are in equities. This means that there is already widespread acceptance of this asset. Volatility may limit the ability to exit sometimes but in a peer-to-peer network, one can always go to other exchanges, although sometimes that becomes tedious

- Khurram Shehzad, a Dubai-based crypto investor

No liquidity

What’s spooked crypto investors even more is the way some trading platforms just stopped taking positions on these assets, which means that even if investors wanted to bail out, there is no possibility of the trade being effected.

“Liquidity will always show signs of evaporation during periods of high volatility with crypto and De-Fi (Decentralized Finance),” said Bal Kishen Rathore, CEO of Century Financial. “Most long-term crypto investors invest and stake their long-term holdings with De-Fi platforms.

“This is especially true for Ethereum and other Layer 2/side-chain protocols used across multiple blockchain use cases.

“These De-Fi platforms, in turn, lend or swap these tokens for other user tokens as per their business model. During adverse market reaction, getting the cryptocurrency back from the staked platform often becomes tedious owing to complexities involved. This entire sequence creates a low liquidity scenario where the core supply becomes scarce.”

All asset markets are going crazy and there is no direction, so it is not surprising that we are seeing the same in the crypto world. I am making a loss right now but the worst possible thing to do is to cut your losses and run. I plan to hold and wait for calm to return

- Ray Harris, a Dubai-based crypto investor

The next break?

The run up to $25,000 – and it did look as if that was a doable this month - was supposed to be the breakthrough investors wanted before a full-sized ‘crypto-winter’ set in. Now, these investors will be hoping that the latest decline will not go well below the psychologically key $20,000 mark.

Some UAE investors, however, are willing to wait. And they have not lost faith in the investment category.

According to Yasin Murtaza, “I have been unconcerned with the limits on withdrawals (by trading platforms). This happens in stock exchanges as well when downside limits are reached and investors are unable to sell.

“Crypto is still a new phenomenon and one that is set on revolutionizing the world. I am adding to my exposure at current levels.”

With crypto , take these steps
Crypto trading platforms are facing a liquidity crisis and some have enacted daily limits on investors. Here are some safeguard measures investors should take on crypto buys:

* Always open an account and invest with a registered and regulated exchange/broker;

* Choose the horizon and purpose of entering the crypto markets. Investors wanting to trade over a short term can better look to trade in crypto futures/CFDs. But this comes at additional risk and the requirement of always maintaining sufficient MTM margin and excess cash liquidity in the account;

* Investors willing to enter and hold the cryptocurrency for a longer duration can look to enter positions with spot exchanges. Investors looking to earn additional yield can look to stake these spot holdings with other De-Fi lenders. During an extreme market fall, do not exit the position in haste. With a long-term scenario in mind, sticking to the same is crucial. This is especially true even if the spot prices drop below the average buying price;

* Do not fall for market rumors and always invest in the right crypto product with the right platform. The Terra Luna collapse has very well highlighted what a poorly designed use case and technology application can do to the individual’s savings; and

* Understand and look for what cryptocurrency does. Simply investing in a speculative token with no practical use cases is bound to make the investor lose money at some point of time.

- Bal Kishen Rathore of Century Financial