The adoption of artificial intelligence is set to supercharge the use of cryptocurrencies globally, the former head of the world's largest crypto exchange Binance said.
Technology is growing rapidly, which in turn will support the use of blockchain, Changpeng Zhao, commonly known as CZ, said at the FinTech Forward event in Bahrain on Thursday.
“I think AI is going to drive crypto like crazy. AI will facilitate like, 1,000 or a million times more transactions for everyone in the world,” he said.
“AI can only use a blockchain; it is not going to be able to use credit cards … so AI is different as a tool, but finance will happen on the blockchain. I think there are many, many different areas for growth.”
Cryptocurrencies, as an asset class and as a means of transaction, are also very secure, although there are many “misconceptions” about illicit activity in the industry, Mr Zhao told delegates at the event.
“Every time something bad happens using crypto, then it's [in the] headlines. But if you actually look at the numbers, the percentage of transactions that are bad in crypto is extremely low. I think it's less than 0.1 per cent or something, whereas in traditional finance, the percentage is 2 per cent to 5 per cent,” he said.
The fact that crypto is extremely traceable means that “it's actually much easier to conduct law enforcement using blockchain”, he added.
US adoption of Crypto
Legitimacy is also coming from the US government adopting crypto. The world's largest economy has this year introduced a slew of cryptocurrency legislation in line with America's aim to be the global leader in digital assets.
The Clarity Act, the Anti-CBDC Surveillance State Act, and the Genius Act, are among the legislative moves intended to prioritise consumer protection and strengthen the US dollar’s reserve currency status.
Countries in the Gulf region, however, are leading global efforts when it comes to crypto regulation, he said.
“Bahrain is one of the leading regulatory bodies in the whole space, but many people don't know about it. And I think the UAE is very strong as well. Abu Dhabi, Dubai, they're very forward thinking,” he said.
Bahrain was one of the first countries in the region to regulate the space. The Central Bank of Bahrain introduced a regulatory framework for cryptoasset services through its Crypto-Assets Module, which provides a legal and operational framework for cryptoasset providers.
The UAE has also taken steps to encourage the adoption of cryptocurrencies and build robust frameworks and legislation. Dubai's Virtual Assets Regulatory Authority and Abu Dhabi’s ADGM are leading crypto adoption efforts in the UAE, the second-largest economy in the oil-rich GCC economic bloc.
The Gulf's cryptocurrency market, which was valued at $744.3 million last year, is projected to grow at a compound annual growth rate of nearly 17 per cent to exceed $3.48 billion by 2033, according to an Imarc Group report.
“The market is experiencing significant growth, mainly driven by increasing digital transformation, government blockchain initiatives and rising interest in decentralised finance,” the report said.
“With robust internet penetration and a tech-savvy population, the GCC is emerging as a key hub for cryptocurrency adoption and blockchain technology development,” it added.
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The chief operating officer of Hyperloop Transportation Technologies, Andres de Leon, said his company's hyperloop technology is “ready” and safe.
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Mazen Abukhater, principal and actuary at global consultancy Mercer, Middle East, says the company’s Melbourne Mercer Global Pension Index - which benchmarks 34 pension schemes across the globe to assess their adequacy, sustainability and integrity - included Saudi Arabia for the first time this year to offer a glimpse into the region.
The index highlighted fundamental issues for all 34 countries, such as a rapid ageing population and a low growth / low interest environment putting pressure on expected returns. It also highlighted the increasing popularity around the world of defined contribution schemes.
“Average life expectancy has been increasing by about three years every 10 years. Someone born in 1947 is expected to live until 85 whereas someone born in 2007 is expected to live to 103,” Mr Abukhater told the Mena Pensions Conference.
“Are our systems equipped to handle these kind of life expectancies in the future? If so many people retire at 60, they are going to be in retirement for 43 years – so we need to adapt our retirement age to our changing life expectancy.”
Saudi Arabia came in the middle of Mercer’s ranking with a score of 58.9. The report said the country's index could be raised by improving the minimum level of support for the poorest aged individuals and increasing the labour force participation rate at older ages as life expectancies rise.
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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.
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Should late investors consider cryptocurrencies?
Wealth managers recommend late investors to have a balanced portfolio that typically includes traditional assets such as cash, government and corporate bonds, equities, commodities and commercial property.
They do not usually recommend investing in Bitcoin or other cryptocurrencies due to the risk and volatility associated with them.
“It has produced eye-watering returns for some, whereas others have lost substantially as this has all depended purely on timing and when the buy-in was. If someone still has about 20 to 25 years until retirement, there isn’t any need to take such risks,” Rupert Connor of Abacus Financial Consultant says.
He adds that if a person is interested in owning a business or growing a property portfolio to increase their retirement income, this can be encouraged provided they keep in mind the overall risk profile of these assets.
