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Dubai Bank: Emirates NBD Issues Crypto Investment Warning

  • Dubai bank Emirates NBD has issued a warning against crypto investments.
  • The bank issued the warning during its recent mid-year update.
  • Also, the bank cited high volatility and market uncertainty as primary risk factors.

Dubai-based bank Emirates NBD (ENBD) cautioned customers on crypto investments. Notably, the bank issued the warning during its recent update webinar.

Also, the warning was due to the volatile nature of BTC and other cryptos. In fact, the bank’s head of asset allocation and quantitative strategies Georgio Borelli noted, “The digital currencies volatility must subside for its broader adoption within finance.”

The banker added that for institutional investors and fund managers to adopt crypto, the high level of volatility has to subside first. However, Borelli also accepted that the volatility and risky nature of crypto is part of its appeal. Borelli made the comments at the bank’s Global Investment Outlook 2021 webinar.

However, despite the high volatility, crypto use has surged this year. In fact, several institutions have braved the risks of crypto to attain the gains. Borelli attributed this growth to the high social utility and thrill of crypto.

Of note, digital currencies have high social utility due to their transactional value. Borelli went on to explain that the strong link between crypto transactions and their value contributes to their price shifts.

The banker drew a link between crypto shifts and their business cycle explaining,

We, therefore, come to the conclusion that cryptocurrencies are cyclical macro assets which raises the question of whether they have a space in an institutional investors’ portfolio. Our answer is as of today, no, not yet. Not all bitcoin risk can be explained consistently by market factors.

Borelli also drew a comparison between crypto volatility and the volatility of other risky assets, like equities and credit. Borelli noted that for the two assets to be equal investors would need the guarantee of a fair positive return. However, BTC and other cryptos are currently unable to offer this security.

The banker also outlined other crypto limits like viable mining, money laundering, and counter-terrorism financing regulations. Borelli also noted that the future of crypto is still uncertain. In fact, he pointed out that not all cryptos will survive and be universally adopted. Similarly, it is yet unclear how regulations will affect how cryptos function.

In line with this, it is still unclear what role central bank digital currencies (CBDC) will play as many countries have started exploring their use. Notably, China has already started testing its digital yuan but other countries are still either in the growth or study phases.

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