Why crypto cur­ren­cies are be­com­ing more sta­ble than ever

Francesca Greco, direc­tor and co- founder of X8 Cur­rency, ex­am­ines key fac­tors in the growth of the cryp­tocur­rency in­dus­try, and what reg­u­la­tors are do­ing to cur­tail the risks

Gulf Business - - FEATURES LIFESTYLE -

Francesca Greco ex­am­ines key fac­tors in the growth of the cryp­tocur­rency in­dus­try and what reg­u­la­tors are do­ing to cur­tail the risks

Pos­i­tive reg­u­la­tory de­vel­op­ments

It is an en­cour­ag­ing sign that the crypto cur­rency com­mu­nity and reg­u­la­tors have been quick to evolve and re­spond to risks that have been iden­ti­fied in the mar­ket.

For ex­am­ple, in June 2018 the Fi­nan­cial Ser­vices Reg­u­la­tory Au­thor­ity at the Abu Dhabi Global Mar­kets is­sued a reg­u­la­tory guid­ance on Ini­tial Coin Of­fer­ings (ICOs) and crypto as­sets, bring­ing reg­u­la­tory clar­ity to the in­dus­try and pro­vid­ing in­vestors with con­fi­dence in the reg­u­la­tory frame­work gov­ern­ing crypto as­sets.

Coun­ter­ing high price volatil­ity

Cur­ren­cies such as Tether and TrueUSD are backed by fiat cur­ren­cies to bet­ter man­age the risk of high price volatil­ity and pre­serve in­vestors’ eq­uity on a best ef­fort ba­sis. While other cur­ren­cies such as Pe­cu­nio and Gold­mint have utilised gold re­serves to mit­i­gate high price volatil­ity.

X8 Cur­rency uses a hy­brid ap­proach, whereby the price of the X8C coin is backed by a bas­ket of eight ma­jor fiat cur­ren­cies and gold coins, which sig­nif­i­cantly re­duces the risk of high price volatil­ity and coun­ters in­fla­tion­ary pres­sures. This hy­brid ap­proach is the be­gin­ning of a new era for cryp­tocur­ren­cies, as in­vestors gain con­fi­dence in the man­age­ment of the un­der­ly­ing bas­ket of as­sets that un­der­pin the X8C coin.

Dig­i­tal ‘Know Your Cus­tomer’ tech­niques

There is a pro­lif­er­a­tion of reg­u­lated ser­vice providers that now of­fer vir­tual ‘know your cus­tomer’ due dili­gence ser­vices at an af­ford­able price. These en­able fin­techs to val­i­date their cus­tomers prior to on-board­ing and en­sure that their iden­tity is es­tab­lished and in line with in­ter­na­tional reg­u­la­tory re­quire­ments- thus pro­vid­ing com­fort to law en­force­ment and fi­nan­cial ser­vices reg­u­la­tors. The ver­i­fi­ca­tion process is man­aged us­ing video call­ing, which re­duces the cost bur­den on the com­pany and en­sures the process is seam­less for the cus­tomer.

Dig­i­tal as­set man­age­ment

Given the in­creased num­ber of sta­ble coins within the in­dus­try, in­vestors are now turn­ing to dig­i­tal as­set man­age­ment to com­pli­ment the tra­di­tional as­set man­age­ment strate­gies that have been pur­sued over the past three decades. There is in­creased in­vestor ap­petite to work with firms that can chan­nel funds into sta­ble coins in the near fu­ture that will pre­serve in­vestor value and pro­vide a re­spectable re­turn.

Re­duced costs of un­der­tak­ing cross bor­der money trans­fers

Money ex­change houses are now sav­ing costs on fund trans­fers by con­vert­ing one fiat cur­rency into a dig­i­tal cur­rency and then ex­chang­ing the dig­i­tal cur­rency into another fiat cur­rency at the ben­e­fi­ciary des­ti­na­tion, re­duc­ing the costs of tra­di­tional money trans­fers and ul­ti­mately pro­vid­ing a sav­ing for the cus­tomer.

Risks

Many reg­u­la­tors across the globe have been quick to is­sue warn­ings re­gard­ing deal­ing in cryp­tocur­ren­cies, due to the fol­low­ing risks: 1. High price volatil­ity 2. Cy­ber­crime at­tacks 3. Money laun­der­ing and ter­ror­ist fi­nanc­ing Within the UAE, the Cen­tral Bank and the Dubai Fi­nan­cial Ser­vices Au­thor­ity have aligned with the global reg­u­la­tory ap­proach, is­su­ing warn­ings for in­vestors deal­ing in crypto as­sets dur­ing the third quar­ter of 2017. For ex­am­ple, in­vestors that in­jected money into Etherum or Bit­coin dur­ing 2017 have lost the ma­jor­ity of their eq­uity in­vested based on the price of the per­ti­nent cur­ren­cies to­day. Bit­coin, for ex­am­ple lost 30 per cent of its price dur­ing Jan­uary 2018. There have also been a num­ber of in­stances whereby cy­ber crim­i­nals have made suc­cess­ful at­tempts to hack crypto ex­changes and steal cryp­tocur­ren­cies.

It is ev­i­dent that the risks af­fil­i­ated to cryp­tocur­ren­cies are real and need to be ad­dressed by reg­u­la­tors and the in­dus­try, The steps taken thus far mit­i­gate the un­der­ly­ing risks ref­er­enced; how­ever fur­ther steps are re­quired to en­sure the risk re­mains man­age­able.

Money ex­change houses are now sav­ing costs on fund trans­fers by con­vert­ing one fiat cur­rency into a dig­i­tal cur­rency

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