Alamy via Reuters Connect
Institutional investors embrace crypto
Prompted by global fluctuations
$34bn transferred to UAE in 2024
Institutional investors in the Gulf are increasingly turning to cryptocurrencies to better manage their risk.
Global currency fluctuation and sustained inflation are encouraging investors to add bitcoin and other digital assets to their portfolios, according to a study by Singapore-based crypto options trading platform QCP.
Notable institutional Gulf investments in crypto so far this year include Mubadala’s investment of $437 million in bitcoin ETF IBIT and Abu Dhabi MGX’s investment of $2 billion in Binance.
Qatar’s sovereign wealth fund is considering investing $500 billion in bitcoin, several crypto publications have reported, including Crypto Oasis which monitored messages on the social networking platform X.
“People are expressing their [investment] views using the digital asset market, because it trades 24/7 when traditional markets are closed,” says Melvin Deng, CEO of QCP Capital, which has an in-principle licence to operate an options trading desk in Abu Dhabi.
Saudi Arabia and the UAE are among the biggest crypto markets in the Middle East and North Africa.
Investors transferred $34 billion of cryptocurrency to the UAE in the year to June 2024, a 42 percent increase on the same period in the previous year, according to an annual report by Chainalysis, a blockchain analytics company.
For Saudi Arabia, the largest Arab economy, the surge was even greater, more than double at 153 percent.
That compares with less than 12 percent for the Middle East and North Africa as a whole, according to the report, which will only be updated after June.
“The introduction of crypto ETFs and futures has helped investors to manage risks and volatility while also maintaining the desired exposure to digital assets, resulting in large inflows of real money into these offerings,” says Arun Leslie John, chief market analyst at Century Financial, a Dubai-based financial services provider.
An ETF or exchange-traded fund is an investment vehicle that pools a group of securities into a fund and can then be traded like an individual stock on an exchange. However, cryptocurrency is not viewed like other assets such as gold as a substitute or a hedge against volatility and uncertainty.
Data shows that there has been a strong correlation between the performance of the S&P 500 Index and bitcoin in the past five years.
“When equities underperform, crypto tends to follow,” says John. “However, gold, a millennia-old safe-haven asset, doesn’t.”
The fastest path to greater liquidity in the cryptocurrency market is through increased allocation from real money and even pension funds, says Deng at QCP. That will help improve crypto’s role as a possible hedge.
Companies like MicroStrategy (MSTR) – a bitcoin buying machine – have helped in this respect, providing an access point for institutional money to enter digital assets.
Last year, MSTR introduced a concept they called bitcoin yield, which refers to the increase in bitcoin holdings per share over time.
“What’s not widely understood is that real money and pension funds [have already been] buying bonds linked to MSTR,” Deng says.
