All systems go... Bitcoin's headlong rush towards $40,000 has taken the mark cap of all crypto currencies past the $1 trillion mark. But is this golden run too good to last for too long? Image Credit: Gulf News

Dubai: This time, Bitcoin doesn’t seem to be in the mood to give way.

After the 17 per cent drop on Monday, which pulled it down from a new peak of $35,000 plus, it was felt Bitcoin would drop down to more “realistic” levels. In much the same way it happened when the cryptocurrency shot past the previous benchmarks of $20,000.

But this week, Bitcoin stayed put. On Thursday, it took a 12 per cent surge to see it soar over $40,000. It’s now dropped to $38,183, but many still believe there’s still a lot of inbuilt momentum to take it all the way to $50,000 at some point this year.

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Should you get in?

There are more UAE based investors who are signing up for Bitcoin and other crypto options in the belief that this is going to be the year when this “asset” goes big and wide. But Sameer Lakhani, Managing Director of Global Capital Partners, is not one of them.

“Price rises clearly create interest - and that’s what we are seeing,” he said. “It’s gone through a boom-bust cycle earlier and usage dropped. The key point is that it’s being considered as a “store of value” rather than a “medium of exchange”.

“The store of value argument is puzzling given the fact that there have been thousands of ICOs (Initial Coin Offering) with the vast majority of them having gone bust.” (The ICO is for cryptocurrencies what IPOs are in the more prosaic world of stocks and shares.)

The wider the usage, the lower should be the volatility on a day-to-day basis. The crypto industry has grown exponentially - but it lacks in size and scale and hence the wild swings. With bid-ask spreads as wide as 10-12 per cent at times, it indicates that despite all the hype, this is still something in its infancy and therefore highly speculative

- Sameer Lakhani of Global Capital Partners

Grow with each failure

Bitcoin logo
As easy as pulling money from the ATM... Bitcoin's now an established asset, but can the same be said about the hundreds of other cryptocurrencies wanting to make a mark? Image Credit: Reuters

But each time a prospective investor decides to stay away from Bitcoins, along comes another price surge. And with each new levels being breached price-wise, there is talk about how one or the other person you know reaped the full benefits of investing in Bitcoins at the right time… and at the right price.

Then it becomes an asset that one needs to have – at any cost. Khurram Shroff, Chairman of IBC Group, is one of the known players in the crypto universe, and he sees this marketplace cleaning itself up in time.

“You are free to create anything on the internet, such as a globally successful ecommerce platform like Amazon, or sell illegal goods and services over the Darknet,” said Shroff. “One has to take the same discerning approach to looking at ICOs.

“In due course, the crypto markets will squeeze out the scamsters - and other bad ICOs - while preferentially adopting the ICO players that are adding value and empowering new conveniences and services for serve humanity.

“Think of the early days of the internet and compare that to how the internet functions today. By design, the internet is an open and decentralized platform, which works best when users are empowered, without the need for permissions issued by intermediaries.”

Being the first and most established cryptocurrency, Bitcoin will definitely have a particular advantage over other alt-coins, in the present scenario. Apart from being the first, it is also a highly effective way to preserve and gain value

- Khurram Shroff of IBC Group

Store of value

Apart from those buying Bitcoins as an investment, much in the way they would with gold or stocks, cryptocurrencies are showing up in UAE’s real estate space as the “token” used to seal a property transaction. No cash changes hands, and the entire buy and sell is settled using the Bitcoin price of that day.

“It’s happening because people realize that the blockchain (which is where one buys and sells Bitcoins) is a natural evolution of the economy,” said Blaise Carroz, Vice-President – Acquisitions at Idoneus. “Humanity was trading shells, then gold, then paper money and now cryptocurrency.

“Globally, the crypto market is booming. This phenomenon is not due to pure speculation, but rather to a logical and irreversible evolution of trade. Blockchain is clearly the future of trade.

“The UAE is following the mainstream. More individuals and corporations are seizing the opportunities offered by cryptocurrencies and blockchain. All kinds of buy occur, from the curious individual playing with a portion of his savings to large institutional buyers who are starting to massively invest in that field.

“We need a new secure digital economy that makes it easy for luxury assets, goods and services to be purchased, sold, rented or otherwise experienced.”

Practical issues

Aakarshan Kathuria, who is the Managing Director at the consultancy RiseUp Holdings, says there are still teething issues with paying real estate with crypto assets. “There’s a lot of interest to acquire Bitcoins… but not necessarily for transactions,” he said. “It’s a speculative asset and a lot of people think they can make quick bucks out of it. Or hold on to them based on JP Morgan predictions it would touch $50,000.

“Using these to make real estate transactions – I don’t see a lot of that, because of the very volatility it’s been through. Making a payment in Bitcoin from one “wallet” to another is a matter of minutes.

“If a property is carrying a particular value, you can complete the transaction using Bitcoin prices at that moment/day. But to convert the received Bitcoin into fiat currency (dirham or any government-issued currency), that takes time.

“Now, because of the volatility, this could cause gains as well as losses for the seller. A lot of people are not willing to take on that kind of risk. For transactions to happen, Bitcoin would need some more stability.”

Bitcoin volatility these days is in 10-15 per cent range on a daily basis - this needs to go down to 05-1 per cent for people to start making transactions using it

- Aakarshan Kathuria of RiseUp Holdings

Not for now

But stability is not something easily associated with Bitcoins or other cryptocurrencies for now. The rapid ascent in prices since March last year is fuelled in large part on speculative buying. And at some point, these buyers will engage in profit taking, and that’s when the recent gains could see a bit of wipe out.

So, should you be getting into Bitcoins now? That’s a decision for your heart and mind to take.

If the appetite for risk is limited, there’s always stocks, gold and real estate to choose from…