Kuwait Finance House (KFH) organized an educational seminar on the risks of cryptocurrencies through its account on Instagram, in cooperation with the Management and Marketing Club at the College of Business Administration. 

The Executive Manager – Capital Markets at KFH, Khalid AlRukhayes spoke about the start of digital currencies and their role and functions. He said that digital currencies appeared in late 2008 through Bitcoin which is a cryptocurrency not controlled by a regulatory authority. This currency is usually transferred through the Blockchain system which acts as a record book for the currency transferor and the transferee and grants certain authorities to the latter to dispose of the same.

He also discussed the increasing interest in virtual currencies lately, saying that seeing these currencies as a mean to achieving fast profit or extra income has driven many people to trade in these currencies without considering the resident risks in this kind of investment. He added that the currency movement contains hydro volatility which has no fundamentals. He emphasized that it is very important to gain adequate and proper knowledge in investment fields before getting involved in this kind of investment.

AlRukhayes stated that the risks of virtual currencies are divided into twofold, the first relates to the currency itself and the second relates to the digital currency trading platform.

He indicated that reports state that the number of digital currencies has exceeded 4000 currencies, thus signifying how easy it is to produce such currencies. He added that an individual with sufficient abilities and experience in information technology would be able to issue and market the virtual currency through influencers in the social media to encourage other individuals to buy it. Accordingly, the issuer would own a major part of the currency. Once the currency price goes high the issuer sells his position to realize huge profits. On the other hand, the persons who have entered the investment will continue to sell, thus resulting in a sharp drop in the currency value and incurring heavy losses while the issuer has achieved huge profit from this transaction.

Lack of Control

AlRukhayes emphasized that the issuance of traditional sukuks and bonds is not established without the prior consent of the regulatory authorities that study the issuance and its risks and details. Approval is only given after reviewing, evaluating, and marketing the issuance. On the contrary, virtual currencies are issued, marketed, and purchased in one day through an unknown party.

He added that the existence of a regulatory authority is crucial to organize the issuance and protect investors rights. Obviously, this matter is not applicable to cryptocurrencies.

AlRukhayes went on to say that the rise and fall of assets is a common phenomenon in categories of assets such as real estate, stocks, and other assets. The movement of assets is dependent on certain fundamentals e.g., the rise of company’s share may be attributed to the profit realized or to the expansion in the market which is considered as positive news for the company’s share while on the other hand virtual currencies do not have any fundamentals.

AlRukhayes added that the storage of virtual currencies on platforms is exposed to cyber-attacks. Should any error occur in codification while the virtual currency is being transferred from one platform to another there would be no way to correct the error. This would cost the investor massive losses and there would be no regulatory authority to refer to in these cases.

AlRukhayes appreciated the efforts exerted by the Central Bank of Kuwait in sponsoring the “Diraya” campaign in cooperation with the Kuwait Banking Union to spread awareness and enhance its social program that aims to increase public awareness of the most significant financial issues and the method of taking precautionary steps to encounter fraud, theft and high-risk investments.

It is worth mentioning that KFH focuses always on organizing several training sessions for its employees to increase their expertise and instigate them to spread this information to customers in a simple manner through direct contact in service centers and through social media and various e-channels of the bank.