M. Chailis, Libertex Group: Challenges and benefits for the cryptocurrency sector

Libertex’s Group CMO, Marios Chailis, analyzes the cryptocurrency sector, highlighting the problems, challenges, and prospects that are opening up in the near future for both the global and the Cypriot economy.

Mr Chailis, in his interview with StockWatch, talks about the challenges facing for the crypto sector in 2024, the trends emerging in the investment world and comments on the prospect of crypto, fintech and traditional banks coexisting.

Mr. Chailis explains how investors can be protected in the crypto sector and what tools could support investors in their first steps, while also setting out the steps that can boost the level of investment knowledge in Cyprus.

The interview

What do you consider the most significant challenges for the cryptocurrency sector in 2024?

We are going through a year where the cryptocurrency sector is at a critical turning point. Rapid growth and increased demand bring to the forefront exciting opportunities as well as significant challenges. I believe that the biggest challenge we all who are involved in this specific sector must face today continues to be the ambiguity and instability in regulations.

At the same time, the tightening of regulations applied in some countries is expected to hinder the operation of exchanges and cryptocurrency businesses. I could not fail to mention the aspect of cybersecurity, with cryptocurrencies being an attractive target for hackers and scammers, something that is logically a hindrance to their spread.

However, despite the challenges, the cryptocurrency sector presents great dynamics and many benefits. Addressing these challenges and implementing a legislative framework that creates a strong safety net - mainly for investors, is necessary for the healthy development and wide adoption of cryptocurrencies in the near future.

Recently, regulatory authorities have tightened the noose around activities related to crypto assets, continuously promoting new regulations to enhance control. Are there any pending issues in the relevant regulatory framework in Cyprus?

The Cyprus Securities and Exchange Commission operates as an independent public authority responsible for supervising various sectors of the financial market, including activities concerning crypto assets. Although its activity is mainly focused on issues of combating money laundering from criminal activities and financing terrorism, its supervisory field is expected to expand. The upcoming implementation of the European Regulation on "Markets in Crypto Assets" towards the end of 2024 includes competencies, among others, such as product governance, prevention of market abuse, and preemptive risk supervision. This constitutes a comprehensive regulatory framework for services related to crypto assets in Cyprus.

Adverse developments are often recorded regarding fraud cases, among others, involving large companies that are or were active in the sector. How can the sector be protected from these incidents and enhance its credibility?

The establishment of a clear regulatory framework for cryptocurrency companies, with strict control and supervision procedures, is necessary to prevent fraud, as well as the issuance of operating licenses only to reliable and solvent companies with strict compliance with the rules. The adoption of transparent procedures by cryptocurrency companies, with full disclosure of financial information and operations as well as the application of high security standards for the protection of users' funds, with regular checks and evaluations, will enhance trust. Equally important is the public education regarding the operations and risks of cryptocurrencies.

Finally, the development and adoption of a code of ethics by the cryptocurrency companies themselves, with strict practices and standards of behavior, will enhance self-confidence and trust. All these, combined with the cultivation of a culture of ethics and transparency, can shield the cryptocurrency sector from fraud incidents, enhance its credibility, and promote its healthy development.

How are asset markets affected by the scenarios of central banks pausing interest rate hikes and the two ongoing wars in Ukraine and the Middle East?

If the pause is due to strong economic growth, the rise will be sustainable, while if it is due to recession, it may be temporary. There will likely be a drop in the bond market as yields decrease, while there may be a potential stabilization or rise in the real estate market, as reduced charges will fuel demand.

Conversely, if the military conflicts in Ukraine and the Middle East continue, all markets will be negatively affected in combination with the continuous rise in global prices for basic goods, further complicating the public's purchasing power. The overall effect, of course, will depend on the combination and interaction of the two scenarios as well as the presence of other factors, such as global economic development, inflation, and political instability. An accurate prediction is difficult as the situation remains fluid, hence close monitoring of developments and an informed analysis of the data are necessary for making investment decisions.

What trends are expected to emerge in the new year regarding investments?

2024 is expected to bring exciting investment opportunities, focusing on sustainability, digital transformation, cybersecurity, health, wellness, and emerging markets. There is also an expected increase in investments in alternative assets, such as cryptocurrencies and art, and a focus on long-term investments with sustainable returns. The further integration of AI (artificial intelligence) in the investment sector can prove to be a valuable tool, those who invest in it or leverage it timely will surely come out ahead. Careful analysis of trends and the adoption of a balanced strategy will be necessary for achieving successful investments.

What level do you think investment knowledge is at in Cyprus, and how can it be enhanced to protect potential investors?

The level of investment knowledge in Cyprus presents heterogeneity. While a significant part of the population has basic knowledge, there is a lack of in-depth understanding of complex investment products and strategies. This is mainly due to limited access to quality education and information on investment issues, insufficient financial literacy, which causes difficulty in understanding investment terms and risks, misinformation, and unfounded promises from unreliable sources. Enhancing knowledge and, by extension, protecting investors can initially be achieved through their education. Thus, enhancing financial education in schools and universities, organizing seminars and informational conferences for the general public, and information campaigns about the risks and opportunities of investments are crucial steps.

From the state's side, stricter regulation of the investment market is required to protect against fraud and manipulation, further strengthening the supervision of investment companies and products, and transparency in investment information, terms, and conditions. Enhancing investment knowledge in Cyprus is essential for protecting potential investors. The implementation of coordinated efforts by entities, organizations, and professionals in the sector, with an emphasis on education, regulation, and information, can lead to a more informed and safer investment environment.

What are the most important tools for a novice investor, and how can technological advancements help or mislead?

Technology offers powerful tools but also carries risks. Proper education, critical thinking, careful selection, and risk management are essential for successful investments. Important tools include education, online platforms, analysis tools, and portfolio monitoring applications. Also, automated investments, robo-advisors, decision-making algorithms, access to information, data, and analyses, and diversification into digital assets (cryptocurrencies, NFTs) can provide significant assistance.

What we always say to potential investors is: education before investment, reliable sources of information, scepticism towards enticing offers, selection of proper investment tools and platforms, conservative approach, risk management, and consultation from professionals.

How do you evaluate the development of the fintech sector in Cyprus, and what prospects do you see in the field?

The Republic of Cyprus has made notable progress in developing the fintech sector in recent years. Creating an entrepreneurial environment, combined with the adoption of progressive regulatory frameworks, has attracted a multitude of startups and established fintech companies. As a result, Cyprus has evolved into a regional fintech hub, offering fertile ground for innovation and growth in this sector. Therefore, further development and rapid maturation of the domestic fintech sector are expected in the coming years. The increased adoption of digital technologies, by both consumers and businesses, creates new opportunities for the development of innovative fintech solutions, and Cyprus possesses the necessary guarantees to evolve into a leading fintech centre in the European territory, offering strategic geographical advantages, a stable and reliable economic environment, a high level of workforce expertise, and a favourable regulatory environment focused on promoting fintech development.

Can cryptocurrencies, fintech, and traditional banks coexist harmoniously?

I believe that the harmonious coexistence of cryptocurrencies, fintech, and traditional banks is feasible, with mutual benefits for all parties. The adoption of cryptocurrencies by banks, with careful risk assessment and regulatory requirements, can lead to innovation, growth, and improvement of services for the benefit of consumers. This can be achieved through strategic collaborations between banks and fintech companies to develop and offer innovative services, leveraging blockchain technology and cryptocurrencies. With hybrid solutions such as banks adopting cryptocurrencies for offering crypto- and traditional currency transaction services, digital wallets, and crypto asset management, as well as banks using cryptocurrencies to facilitate cross-border payments and banking transfers. However, some challenges need to be overcome, such as the unclear and heterogeneous regulatory framework for cryptocurrencies and the difficulty of easily integrating cryptocurrencies into existing banking systems. Yet, the evolution and maturation of the regulatory environment for cryptocurrencies, the development of innovative fintech solutions, the shift towards digital services combined with the increased demand for cryptocurrencies from consumers, can lead to increased adoption by banks.