Why cryptocurrencies are doing a ‘bad job’ at the market

Exclusive: A widening developer base and an aggressive information campaign to educate investors to trade wisely will help mainstream acceptance, Keynote chief says

Moe Levin, chief executive and founder of Keynote, during an interview with The National at the Fantom Developer Conference in Abu Dhabi. Khushnum Bhandari / The National

Cryptocurrencies are struggling to cope up with volatility owing to their niche nature and small market size, said the founder and the chief executive of Keynote, one of the world's biggest organisers of cryptocurrency events.

Compared with a traditional big-ticket stock market, which has huge buffers of funds to support it, the cryptocurrency industry is not big enough yet and doesn't have enough money to absorb shocks, Moe Levin said.

“It's a market that isn't ready to handle a huge amount of money yet, so it does a bad job at handling quick and sharp price increases," he told The National at the Fantom Developer Conference in Abu Dhabi.

"Then there's momentum, hype and people jumping on the bandwagon. Those are the people who lose more money because they buy at the wrong time and then the market collapses.”

“It's a market that isn't ready to handle a huge amount of money yet, so it does a bad job at handling quick and sharp price increases. Then there's momentum, hype and people jumping on the bandwagon - and those are the people who lose more money because they buy at the wrong time and then the market collapses,” he said.

Cryptocurrencies have exploded in popularity over the past year as investors parked their spare cash in the asset amid the Covid-19 pandemic. Bitcoin, the biggest cryptocurrency, hit a new record of $66,976 last week after the debut of the first futures exchange-traded fund of the digital currency on Wall Street but has experienced wild swings in the past year.

The volatility of assets such as Bitcoin and Ethereum has often been a deterrent for widespread acceptance, with critics such as top US economist Nouriel Roubini saying it is "too volatile" to be considered a currency.

Mr Levin admitted that these assets do have drawbacks, but a widening developer base and an aggressive information campaign to educate investors could turn this around sooner.

If people opt to rely on hype rather than market fundamentals, investments would be put under severe jeopardy, he said.

Bitcoin and other cryptocurrencies are notorious for moving in tandem with sensationalist statements. In June, Tesla chief executive Elon Musk tweeted a broken-heart emoji, apparently signalling a split from Bitcoin owing to its high energy consumption. The move dragged the cryptocurrency down 5.4 per cent.

Ten days later, he reversed course, saying Tesla would accept cryptos when miners use clean energy, sending Bitcoin's price up 12.4 per cent.

On Tuesday, another cryptocurrency, Shiba Inu, lost 20 per cent of its value after Mr Musk replied "none" to a tweet asking if he held any of that asset.

“If Elon Musk tweets something, this should not be referred to as an investment strategy; this is not smart investing, this is just people gambling,” Mr Levin said.

Another “gamble” people take when investing is when they are more interested in making money quickly than the pace of technology, Mr Levin said.

“This is not smart investing. It’s not understanding the ecosystem; this is just gambling with cryptos.”

Mr Levin, who has been organising events dedicated to the cryptocurrency market for almost a decade now, was part of the team that launched Ethereum, currently the world’s second-largest cryptocurrency, in 2014.

Having advised corporates, regulators and governments, including in the US and Canada, he has also worked with UAE blockchain projects in 2015, most notably with BitOasis, a cryptocurrency platform in the UAE.

Cryptocurrencies are not licensed by the UAE Central Bank, although a number of cryptocurrency exchanges have been given permission to operate within the financial free zones. The UAE dirham is the only legal tender in the country that is recognised by the Central Bank.

But despite his experience, the one thing he cannot predict is in which direction the market will go, given the fast pace of innovation and the huge number of operators entering the crypto game.

There were 6,826 cryptocurrencies globally as of October 21, 10,242 per cent higher from 2013's 66 companies, according to data from Statista.

“The market is moving really, really fast. There was a time that I knew everybody in the industry. Now, you have millions of people who know about cryptos,” Mr Levin said.

“More people are joining the industry at such a fast rate, with many even leaving their jobs for cryptocurrencies.”