Cryptocurrency markets recently experienced a spectacular crash, with total market capitalisation falling from about $3 trillion to just below $1tn today.
This is not an unprecedented situation in cryptocurrencies — we witnessed a similar event in 2018.
Back then, Bitcoin’s value collapsed by more than 80 per cent following a breathtaking rally that saw its price rise from $900 to around $20,000, making some of the early adopters millionaires and billionaires in the space of only a year.
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World's 10 richest crypto billionaires — in pictures
During that time, the cryptocurrency market was establishing itself as a serious player in the financial ecosystem, so much so that Bitcoin attracted the attention of regulators, particularly in the US and China. This led to its famous crash of 2018 amid fears that central bank scrutiny would stifle the burgeoning cryptocurrency industry.
As we all know, however, Bitcoin was far from dead.
The birth of decentralised finance
Over the 18 months that preceded the most recent cryptocurrency crash, we saw the cryptocurrency industry coming of age.
An incredible amount of development took place that eventually led to the establishment of the decentralised financial network and the 2020 boom.
Decentralised finance, commonly known as DeFi, was born in 2019 when a handful of organisations sought to challenge the status quo in financial services.
Their goal was to democratise finance, facilitating peer-to-peer lending, banking and investment services without the need for a centralised intermediary.
Transparency and financial inclusion were the slogans on the banners of this revolution.
The popularity of this idea quickly propelled the DeFi sector to dizzying heights. In December 2021, the total value locked in DeFi protocols — an indicator of the size of this market segment — stood at $247.96 billion.
Today, this value has dropped to $56.27bn, while the price of Bitcoin has plummeted more than 70 per cent from its all-time high of $68,000.
The coming boom
As history has shown, though, it is only a matter of time until the next period of development arrives. This time, it will be greater than anything we have witnessed so far.
This year's cryptocurrency crash has taught the industry important lessons. The most important of these is that bringing traditional, centralised financial practices on to the blockchain simply doesn’t work.
Lessons from the great financial crisis
Former billion-dollar giants such as Celsius and Voyager Digital marketed themselves as crypto banks, empowering people to take their financial futures into their own hands.
However, while Celsius was calling for its customers to “unbank” themselves, in reality they were simply swapping one type of centralised control for another.
As unsecured lenders, customers who chose to earn interest on their cryptocurrencies through Celsius never became custodians of their own assets. They relinquished control in exchange for an attractive annual return, in the erroneous belief that their funds would be safe.
In a similar way to the 2008 great financial crisis, this system worked until it did not — and then it failed spectacularly.
The demise of these crypto banks was little different from the fall of Lehman Brothers back in 2008. Excessive leverage and risk-taking was followed by a liquidity crisis and a domino effect across the market.
Power to the people
This is precisely why the crypto industry can’t follow the route of traditional finance. A different, fair financial system cannot be built on the principles that govern a broken paradigm.
DeFi is all about giving the power back to the people. This means no longer relinquishing ownership of their assets. This means transparency. This means financial inclusion.
Although DeFi has certainly suffered in volume from the contagion in the crypto market, the protocols worked well in the slump.
The next 18 months will see a true renaissance of this sector. DeFi will go back to its roots and build a decentralised network that can provide a true alternative to the current elitist, exclusive and inaccessible global financial system.
True decentralisation
In a decentralised economy, it won’t matter where people live, what their credit score is, or how rampant inflation is in their country. Financial freedom will be available to all through a secure blockchain at the click of a button.
Traditionally, cryptocurrency downturns are a chance for the industry to take a breather and prepare for the next boom cycle.
The preparation that is taking place behind the scenes in the DeFi space today dwarfs the development that has happened in cryptocurrencies in previous years.
What we will see at the end of it will be a true democratisation of finance, the way it was supposed to be from the beginning.
Stefan Rust is the founder of Laguna Labs, a blockchain development house, and former chief executive of bitcoin.com
Desert Warrior
Starring: Anthony Mackie, Aiysha Hart, Ben Kingsley
Director: Rupert Wyatt
Rating: 3/5
Expo details
Expo 2020 Dubai will be the first World Expo to be held in the Middle East, Africa and South Asia
The world fair will run for six months from October 20, 2020 to April 10, 2021.
It is expected to attract 25 million visits
Some 70 per cent visitors are projected to come from outside the UAE, the largest proportion of international visitors in the 167-year history of World Expos.
More than 30,000 volunteers are required for Expo 2020
The site covers a total of 4.38 sqkm, including a 2 sqkm gated area
It is located adjacent to Al Maktoum International Airport in Dubai South
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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Ms Yang's top tips for parents new to the UAE
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Itcan profile
Founders: Mansour Althani and Abdullah Althani
Based: Business Bay, with offices in Saudi Arabia, Egypt and India
Sector: Technology, digital marketing and e-commerce
Size: 70 employees
Revenue: On track to make Dh100 million in revenue this year since its 2015 launch
Funding: Self-funded to date
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Terror attacks in Paris, November 13, 2015
- At 9.16pm, three suicide attackers killed one person outside the Atade de France during a foootball match between France and Germany
- At 9.25pm, three attackers opened fire on restaurants and cafes over 20 minutes, killing 39 people
- Shortly after 9.40pm, three other attackers launched a three-hour raid on the Bataclan, in which 1,500 people had gathered to watch a rock concert. In total, 90 people were killed
- Salah Abdeslam, the only survivor of the terrorists, did not directly participate in the attacks, thought to be due to a technical glitch in his suicide vest
- He fled to Belgium and was involved in attacks on Brussels in March 2016. He is serving a life sentence in France
