2019 has been an exciting year for crypto and blockchain enthusiasts in the UAE. Crypto markets have left the 2018 bear market behind and Bitcoin has seen an impressive revival. Trading infrastructure and regulations have matured, and institutional players, as well as regulated exchanges, have entered the space. The stage is set for an even more exciting year 2020.
Bitcoin Halving will move prices in 2020
The Bitcoin Halving in May 2020 will be a major event for crypto traders during the next year. Historically, prices have been increasing during the months prior to the halving event and kept going up afterward. Some analysts have even predicted a price of more than $100,000 in 2020.
Ahmed Jacob, UAE based Managing Partner of INVAO Group, comments: “These price predictions are based on the historical performance of Bitcoin, which is not a great indicator for future movements. However, the underlying idea that the halving will drive up prices in 2020 makes sense; we also see upside potential for Bitcoin in 2020. The main question is, how much of this effect is already included in today’s price?”
Legal security for UAE businesses and investors
In October, the Securities and Commodities Authority (SCA) posted draft regulations concerning crypto assets on its website with the intent to gather industry feedback. The goal is to introduce new crypto asset regulations to provide greater clarity for crypto-related projects in the country.
According to the SCA, these Crypto Asset Regulations will “encompass all aspects of the Crypto Assets industry in the UAE ranging from token issuance requirements to trading and safekeeping practices.”
Jacob says, “Regulations are key to the industry’s future development. By clarifying the rules, the SCA can create legal certainty for businesses and investors alike. If crypto-friendly regulations are introduced in 2020, more businesses and investors, especially regulated players, will flock into the region.”
Institutional demand will keep increasing
Crypto markets have undergone significant changes in 2019. Institutional investors and regulated exchanges have entered the space, leading to increasing professionalization of the industry.
In 2020, this trend will continue and accelerate. Jacob says, “UAE-based institutional investors, in particular family offices, are becoming increasingly interested in crypto-markets. The key argument for institutions to get involved is that digital currencies are uncorrelated to other asset classes, making them a perfect tool for portfolio diversification”.
This trend is already visible today. Bakkt, an exchange for institutional investors, launched in September and got off to a slow start. Since then, it has seen steady increases in trading volumes. Also, derivatives based on crypto assets – primarily an institutional investment tool – have seen a massive spike in trading volumes.
Diversification will become more important
Jacob believes that institutional investors will mostly invest in the top-30 crypto assets, first and foremost Bitcoin. Demand for other altcoins will be driven by retail investors. “Many cryptocurrencies are comparable to penny stocks,” says Jacob. “And institutional investors usually don’t buy penny stocks. Instead, institutions will focus on those assets that already have an established track record.”
Jacob advises against a sole focus on Bitcoin, “Like with every other asset class, crypto-investors need to diversify. It wouldn’t be wise for an equity investor to only invest in automobile stocks. Likewise, it’s not clever for crypto investors to only invest in Bitcoin.”
In 2018, when the market was down and extremely volatile, most Altcoins moved in accordance with Bitcoin. In 2019, this relationship has changed and Altcoins are not that strongly affected by Bitcoin price-movements anymore. Therefore, crypto investors have more opportunities to diversify their portfolios.
Security tokens will go live for trading
Cryptocurrencies are still dominating the digital asset market. In 2020, Security Tokens will play an increasingly important role. “The first STOs have closed in 2019 and listed their tokens for trading on regulated exchanges,” says Jacob. “Today, most of these tokens, as well as the exchange infrastructure, are too nascent to attract significant liquidity. 2020 will be the year when this will start to change.”
INVAO Group has recently listed its IVO – Blockchain Diversified Bond (ISIN: LI0471823018) for trading at London Derivatives Exchange. The Bond is based on an actively managed and diversified portfolio of blockchain assets and enables institutional and retail investors to participate in the asset class.
Cryptocurrencies as recession hedge
Leading economists predict a recession to hit the global economy in 2020. “If that happens, investors will look for safe-haven assets that are not affected by the downturn of the real economy,” says Jacob. “Much like gold, crypto-assets have this characteristic. A worsening in economic conditions will inevitably result in higher demand for cryptocurrencies.”
Altogether, crypto markets are poised for an exciting year 2020. It remains a space worth watching, now more than ever before.