Cryptocurrencies like Bitcoin, Ethereum and Litecoin have recently seen a surge in popularity as investors look for new ways to generate returns. However, is this investment avenue available in the UAE? And if so, what are the risks and rewards associated with cryptocurrencies?
In this article, we take a closer look at cryptocurrencies in the UAE and explore whether they are worth investing in. If you are keen on investing in crypto, you can do so with a reputable broker such as Saxo Bank Dubai.
What are cryptocurrencies, and how do they work?
Cryptocurrencies are digital or virtual tokens that use cryptography to secure their transactions and control the creation of new units. Any government or financial institution does not control cryptos. Bitcoin, the most famous cryptocurrency, was created in 2009 as a cash system that could be used electronically between peers.
Ethereum, released in 2015, is a decentralised platform that runs smart contracts – applications that run exactly as programmed without any possibility of fraud or third-party interference. Litecoin, created in 2011, is also a peer-to-peer cryptocurrency and open-source software project.
The benefits of investing in cryptocurrencies
Cryptocurrencies offer investors many potential benefits. First, they provide an alternative to traditional investments, such as stocks and bonds. Cryptocurrencies are also highly volatile, leading to more significant profits or losses in a shorter period. For example, Bitcoin prices soared from around $1,000 in early 2017 to over $19,000 by the end of the year. However, they can also be incredibly volatile, as was seen in early 2018 when prices plunged by over 50% within weeks.
Another benefit of investing in cryptocurrencies is that they are not subject to government or financial institution control. It means that investors are free to buy and sell cryptocurrencies without worrying about interference from these institutions. Additionally, cryptocurrencies are often used as a way to circumvent capital controls. For example, investors in China have been known to use Bitcoin to get around the country’s strict currency controls.
Lastly, cryptocurrencies offer investors a high degree of anonymity. Unlike traditional investments, which are typically tied to your name and personal information, cryptocurrencies can be bought and sold without revealing your identity. This anonymous nature of cryptocurrencies has made them popular among criminals and those looking to avoid government scrutiny.
How to buy and sell cryptocurrencies in the UAE
Cryptocurrencies can be bought and sold on exchanges, such as Coinbase, Binance, and any licensed broker. These exchanges allow you to buy cryptocurrencies using traditional fiat currencies, such as the US dollar or the Euro. However, it is essential to note that many risks are associated with buying and selling cryptocurrencies.
For example, governments or financial institutions do not regulate cryptocurrencies, meaning there is no protection if they are lost or stolen. Additionally, cryptocurrency exchanges are often subject to hacks and cyberattacks, which can lead to loss of funds.
Investors in the UAE who want to buy cryptocurrencies should set up a wallet to store their tokens. Many different wallets are available but choosing one that is secure and reputable is vital. Once you set up your wallet, you can buy cryptocurrencies on an exchange using fiat or other cryptocurrencies.
When selling cryptocurrencies, you will need to find a buyer willing to pay the price you are asking for. It can be done through an exchange or a direct sale. When a buyer has been found, you’ll need to send them the cryptocurrency tokens, and they will transfer the agreed-upon amount of fiat currency or cryptocurrency to your wallet.
The risks of investing in cryptocurrencies
While there are potential benefits to investing in cryptocurrencies, there are also risks associated with this investment avenue. First and foremost, cryptocurrencies are highly volatile. As we’ve seen with Bitcoin, prices can rise and fall dramatically over short periods, and this volatility can lead to significant profits or losses in a short period.
Another risk is that governments or financial institutions do not regulate cryptocurrencies. This lack of regulation means that there’s no protection if you lose your tokens or if they are stolen. Additionally, cryptocurrency exchanges are often subject to hacks and cyberattacks, which can lead to loss of funds.
Lastly, because cryptocurrencies offer investors anonymity, they have become popular among criminals and those looking to avoid government scrutiny. For example, Bitcoin has been used to buy illegal drugs and other illicit goods on the internet. This anonymous nature also makes it challenging to track criminals who use cryptocurrencies for criminal activity.
The future of cryptocurrency investmentin the UAE
The cryptocurrency market is still in its early stages and is highly volatile, and this volatility makes it difficult to predict how prices will move in the future. However, some experts believe that cryptocurrencies have the potential to become a more mainstream investment. For example, as more countries begin to recognise and regulate cryptocurrencies, they will likely become more popular among investors.