2020 has been a year of transitions. A global crisis has accelerated changes that had been building up for years. And the common thread for many of the most significant of these departures from the past is technology. As the year draws to a close, a surge in cryptocurrency valuations has added one more to 2020’s tally of the unprecedented.
An early proponent of cryptocurrencies in the region, Khurram Shroff is one of the largest HODlers of Bitcoin and Ethereum in the Middle East. Khurram is an award winning global banking and finance leader, who has been featured in the prestigious list of the “Top100 Most Powerful and Influential Muslims in Great Britain and the World” by Power100.
Khurram is the Chairman of IBC Group, a Substantial Investment Company based in the UAE since 2014, with a focus on private equity investment in Blockchain Technology, Real Estate and Art. Since its inception, the IBC Group Limited has focused on investments with a strategic, ethical and innovative strategy, leveraging strong partnerships and cutting edge technologies. Khurram shares his insights.
Days ago, Bitcoin reached its highest ever value, when it went past the $23,000 mark. At the same time, Ethereum, the world’s second largest cryptocurrency by market capitalisation, reached the giddy heights of $660. More than ever before, the performance of decentralised digital currencies is making even the most conservative of market watchers sit up and take notice. And those investors that were ahead of the curve – such as Arab ‘whale’ Khurram Shroff and his Dubai based IBC Group, who hold a million Bitcoin – are being acknowledged as trendsetters.
The surge reflects cryptocurrency’s ability to thrive, in an extraordinary time
The impact of the COVID-19 pandemic has been acutely felt in the world’s markets. Few disruptions could have had as all-encompassing an effect, and investors are looking for alternatives, to secure their holdings. With all human activity coming to a virtual standstill, governments everywhere were forced to announce huge economic stimulus packages, to tide over industry and citizens alike. Money supply in the US increased by a mammoth 33%, and this was reflected in the inflationary pressure on almost every single traditional fiat currency in the world.
In contrast, Bitcoin, which has already been capped at 21 million units, represents an extraordinarily inflation resilient investment. Savvy investors everywhere jumped at the opportunity to hedge against traditional currencies losing value, using cryptocurrencies such as Bitcoin – an inherently deflationary asset.
Economic opportunism is probably one of the most compelling arguments that can be made in favour of a change. But the advantages of cryptocurrencies also extend to their ability to adapt. Not long ago, the energy consumption of crypto-mining server farms – which use more electricity globally, than some countries – were a bottleneck. But now a new model of crypto is addressing that issue as well.
The emergence of eco-friendly cryptocurrency models
The first generation of cryptocurrencies used a ‘proof of work’ model – which rewards crypto ‘miners’ for solving complex problems. Unfortunately, for this to be done profitably, energy intensive server farms are the norm, as crypto-miners compete for profits. The more recent ‘proof of stake’ model retains the ‘decentralised consensus mechanism’ that cryptocurrencies promise, but rewards on the basis of stake holdings, plus random selection.
The successful launch of Ethereum 2.0, which has been developed by co-founder and inventor Vitalik Buterin, signals the proof of stake model going mainstream. With a new and more ecological sustainable model of cryptocurrency having been received enthusiastically by the markets, a major concern about digital currencies has been addressed. This is why the surge in the value of Ethereum, although much less impressive as a valuation than Bitcoin, might be even more significant in the long run, than it’s more successful cousin.
Increased regulation shows markets are adapting to cryptocurrencies
So what about the reservations many governments and market regulators had just a couple of years ago? How will decentralised digital currencies get financial authorities on board? The good news is that better sense is prevailing. The notoriously conservative halls of economic power, which once looked at the crypto upstarts with suspicion, are beginning to accept the black sheep of the family. And even warming up to its strengths.
Decentralised, Blockchain-based cryptocurrencies give investors total and instant verifiability, when it comes to transparency and fairness. With every movement, transaction and alteration recorded by immutable digital records, cryptocurrencies inspire unmatched investor confidence – easily one of the most enabling factors for economic growth. In the post-pandemic new normal, with economic stability and recovery at the forefront of everyone’s minds, these strengths are particularly priceless.
The use of the term ‘currency’, which once rang alarm bells within government circles, has been replaced by a more nuanced understanding of crypto. Regulatory authorities have realised that decentralised digital currencies are just another way to hold and exchange value. Already accustomed to regulating countless variations of investment markets, they are making adjustments to include cryptocurrencies, with their basket of options. And with their path increasingly clear of old-school protectionism, the inherent innovation friendly nature of cryptocurrencies will ensure their increasingly widespread adoption.