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Family offices urged to understand the risks before investing in DeFi and cryptocurrencies

Family offices need to understand the risks before investing in decentralized finance and cryptocurrencies, DeFi industry executives told the Wealth Today Summit in Dubai on Tuesday.

DeFi, which experts say is a safer way to handle financial transactions as it relies on the blockchain, is a viable alternative as the world is rapidly moving towards a digital world that requires protecting assets and wallets. investors, they said.

“From the perspective of financial institutions, the challenge is to adopt DeFi in a way that meets their regulatory obligations to customers,” Wai-Lum Kwok, Senior Executive Director for Licensing and FinTech at the Regulator Abu Dhabi Global Market Financial Services, Narrated The National.

“From a client perspective, they need to understand the risks before investing in the DeFi space.”

Family offices are private wealth management advisory firms that cater to very wealthy individuals. They differ from traditional wealth management companies because they offer more comprehensive solutions, including insurance, tax services, wealth transfer and charitable giving.

More than 200 of the world’s largest family offices cover a total net worth of around $493 billion, with the net worth of individual families averaging around $2.2 billion, Swiss bank UBS said in a 2022 report on the sector.

However, family offices are not immune to the current economic climate. Soaring inflation and moves by central banks to raise interest rates are forcing them to reconsider their strategies and asset allocations, UBS said.

They are reducing fixed income allocations and sacrificing liquidity for returns, as they increase investments in private equity, real estate and private debt, he said.

“The risk of further selling cannot be ruled out as tighter expectations from the Federal Reserve, global selling off of risky assets and the fact that massive cryptocurrency outflows have started to show cracks in the balance. he newly born crypto industry is making cryptocurrencies increasingly rare. appetizing,” wrote Ipek Ozkardeskaya, senior analyst at Swissquote Bank, in a note on Tuesday.

The Wealth Today Summit panel also acknowledged the risks of investing in digital assets, such as cryptocurrencies, but sought to allay fears by stressing the importance of being educated and assuring investors that Regulators oversee market activity.

“It’s extremely safe, especially if you know the type of product, platform and protocol you’re using – especially with a heavily regulated exchange – and when custody of your forms is taken over by the regulator” , said Benjamin Ampen, managing director for the Middle East and North Africa at Kraken Crypto Exchange.

“You can have a real advantage if you are aware. The more research you do, the more benefits you will get.

Delegates and guests listen to a panel discussion at the Wealth Today Summit in Dubai on Tuesday.  Photo: Wealth Today

Blockchain-influenced technologies are operating at a rapid pace, forcing investors, regulators and businesses to keep pace, said Bijan Alizadeh Fard, co-founder and partner at Dubai-based venture capital firm Cypher Capital.

“As the technology started to evolve, we started to see that the industry was changing and moving forward at a very rapid pace. We have already seen three cycles,” Mr. Alizadeh Fard said, referring to the three major crashes that the cryptocurrency industry has experienced to date.

“A few times we thought it was over, but then we realized there was nothing to worry about because it was just a cycle.”

Bitcoin, the world’s first and largest cryptocurrency, slumped below the key psychological $20,000 level on Saturday as investors continued to shy away from riskier assets amid fears of rising interest rates. interest as central banks tried to rein in inflation.

The digital token has since pared its losses and was trading at $21,069.91 as of 5 p.m. UAE time on Tuesday, according to CoinDesk. Still, it is down more than two-thirds from its high of nearly $68,000 last November.

“Traditional investors would only invest in regulated asset classes, but there are clearer indications of how to do business today,” said Stefan Kimmel, Mena Chief Operating Officer at Kraken Crypto Exchange. .

Investors shouldn’t deal with unregulated companies, which are risky and major sources of unproven digital assets that can potentially ruin asset portfolios, Kimmel said.

The sector also grapples with threats to the digital asset ecosystem, with money laundering, market manipulation and online theft being the biggest global threats to DeFi, the blockchain data platform said. Chainalysis in a recent study.

Crypto didn’t experience an extremely aggressive micro-environment as we didn’t touch fear of recession and inflation

Karim AbdelMawla, associate researcher at 21 Shares

The specter of the so-called “crypto winter” – an extended period in which prices remain low for an extended period – is seemingly setting in, with the panel unsure how long this would last given the uncertainty of conditions market and perceptions to the cryptocurrency industry.

The latest crash, however, “had to happen” because the market was “overleveraged and filled with overhyped commodities,” said Karim AbdelMawla, research associate at Swiss crypto platform 21 Shares.

The crypto winter “could last anywhere from a year to two years or even longer,” he said.

“Crypto did not experience an extremely aggressive micro-environment as we did not touch the fear of recession and inflation,” AbdelMawla said.

“In order to have a clear view of how long it will last, we need to know the rules and how to protect the assets.”

Updated: June 21, 2022, 3:07 p.m.


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