bahrainthismonth.com | FEBRUARY 2026 FINTECH 58 0 1 0 1 1 0 1 0 1 1 0 1 0 1 0 1 1 Whither CRYPT0? 1 0 1 0 1 1 Dr. Jarmo Kotilaine, a seasoned development economist with 30 years’ experience across academia, consultancy, banking and government, considers crypto’s volatility, regulation and the real promise of tokenisation. The enduring fascination with cryptocurrencies reflects the profound disruptions brought by technology to finance. A whole new dimension to investment has opened up even as many have little understanding of what they are trading in. No wonder: cryptos like Bitcoin are not even underpinned by real assets. Money, even great fortunes, is made by ‘going with the flow.’ But crypto investment remains a bumpy ride. Since the end of quantitative easing, the drivers of crypto valuations have become less predictable. The 2025 Bitcoin boom ultimately travelled full circle – and not for the first time. This recurrent volatility suggests that crypto today has the nature of a high risk asset rather than an inflation hedge that many had hoped for. The rise of DeFi platforms, which trigger automatic liquidations amid market corrections, further amplifies this dynamic. Before the October crash, crypto-collateralised lending had reached almost $74bn while futures open interest had skyrocketed to over $220bn. Where does all of this leave the ‘new kids on the block’? Beneath the turbulence, some transformative developments are underway. The popularity of crypto has brought established financial institutions into the game. Similarly, regulators have started to impose some guardrails, an example being the passage of the US ‘Genius Act’ in July. These ongoing trends should gradually erode the uniqueness of crypto assets. Perhaps more importantly, there is a growing appreciation of the strategic potential of blockchain technology. It has important applications that promise to transform crypto far beyond its ‘novelty value.’ A currency not tied to a monetary regulator holds obvious appeal. So does an asset supported by an immutable ledger, although this does not necessarily prevent manipulation, nor are the DeFi platforms immune to security threats. Stablecoins can be traded internationally without the customary costs and frictions of national currencies. Asset tokenisation represents another high potential opportunity. Initially limited to stablecoins underpinned by a monetary reserve, the technology is now being applied to shares, bonds and even real estate. Tokens represent claims on assets that can be traded or transferred on digital platforms. Several banks have introduced pilot programmes while some regulators have introduced frameworks to support such assets. Tokenisation promises benefits ranging from increased liquidity and fractional ownership to operational efficiency through speed and lower costs. The use of distributed ledgers entails security and transparency. But there are still hurdles in terms of effective technology integration across different tokens while adoption remains very uneven. Some fear complications for monetary policy and consumer protection. Nonetheless, tokenisation is generally expected to gain traction at an accelerating pace in the coming years, reaching a scale in the trillions of dollars by the end of this decade. Welcome to the world of decentralised finance?
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