Cryptoassets have crept into the Gulf markets in a big way
A global pandemic which has slashed oil prices and prompted unprecedented experiments in monetary policy has meant Gulf states are redoubling their efforts to diversify their economies and shift from being oil-powered to digitally-powered.
Gulf Cooperation Council (GCC) governments, particularly those of the United Arab Emirates (UAE), Bahrain, and Saudi Arabia, have been earnestly working on implementing large-scale digital transformation, including expansion into cryptoassets.
A slew of progressive regulatory developments in recent years have positioned these forward-thinking jurisdictions as emerging hubs for cryptocurrency and blockchain technologies.
The region is now witnessing a frenzy of digital asset investment activity and cryptoasset exchanges mushrooming all around.
Known for its progressive and innovation-driven governance, the small island nation of Bahrain has long embraced crypto and fintech in a big way. In addition to slashing capital startup requirements from around $50,000 to $100 for some businesses, in 2017 the government introduced the region’s first regulatory sandbox.
Just this week, we saw Bahrain issue a licence to CoinMENA, a new Sharia-compliant digital assets exchange CoinMENA. The exchange is one of two in the Kingdom to be regulated by the central bank, the other being Rain.
Rain, founded by Abdullah Almoaiqel, AJ Nelson, Joseph Dallago, and Yehia Badawy in 2017, graduated from the Kingdom’s sandbox in 2019 to become the region’s first fully licensed cryptocurrency brokerage. Last week, the platform raised $6m in a Series A round led by Middle East Venture Partners (MEVP), Coinbase, Vision Ventures, DIFC Fintech Fund and others.
Boris Bohrer-Bilowitzki, head of sales at Copper, believes that the issuance of licenses to Rain and CoinMENA demonstrate the Kingdom’s commitment to embrace innovation while also protecting consumers, commenting: “As the digital asset sector continues on its path toward maturity, jurisdictions such as Bahrain that offer some regulatory protection or licenses will reap enormous gains.”
In the UAE, friendliness to digital assets is evident all around.
Back in June 2018, the nation’s capital, Abu Dhabi, became the first jurisdiction in the world to introduce a comprehensive regulatory framework for cryptoassets. It has since granted in-principle approvals to several crypto firms, including BitOasis and Matrix Exchange.
That same year, the UAE launched Blockchain Strategy 2021, which strives to conduct 50% of government transactions at the federal level using blockchain technology by the end of this year.
The sister emirate of Dubai, which for a long time remained conspicuously hands-off on crypto regulations, last week announced plans to draw up a regulatory framework for the nascent sector. Few details have been released by the Dubai Financial Services Authority (DFSA) at this stage, however it is understood the new regulations, likely to come into effect in 2022, will cover all digital assets and should make life even easier for fintech startups.
Notably, Ripple recently set up a regional base in Dubai, and the company’s CEO, Brad Garlinghouse, has previously shortlisted the UAE for its new headquarters among other countries if it leaves the US amid regulatory scrutiny from the country’s Securities and Exchange Commission.
David Shrier, non-executive director at Copper and world-leading fintech expert to a suite of pioneering international government initiatives – including Dubai – believes the forward-looking policies of apex bodies like ADGM and DFSA will be vital enablers of growth. “The United Arab Emirates have had a progressive view on technology innovation in financial sectors across both Dubai and Abu Dhabi. The Emirates have been pursuing a number of innovations related to distributed ledger within this, as they form an innovation hub in the area. One thing that has impressed me is the enlightened perspectives of the regulators and other government officials I’ve interacted with.”
Not unlike other markets, Saudi Arabia is following developments in crypto with great interest. The country is currently going through many changes right now, working on its Vision 2030 agenda and proactively taking measures to establish a conducive ecosystem for tech developments in the Kingdom.
The Saudi Arabian Monetary Authority (SAMA) is a prime example of an innovative regulator willing to experiment with new emerging technologies. It was one of the first central banks to experiment with blockchain technology, partnering with the UAE to pilot the first shared central bank digital currency (CBDC) for cross-border bank transactions between the two countries. The hope is that the CBDC, called Aber, could reduce remittance costs.
Other significant SAMA programs include the Fintech Saudi Initiative launched in cooperation with the Capital Market Authority in 2018, and the introduction of the SAMA Regulatory Sandbox, which now has more than 30 companies on its books.
Bohrer-Bilowitzki believes Saudi Arabia could become a fertile ground for digital assets for several reasons. “For Saudi Arabian high net worth individuals, crypto is an attractive alternative to low-yielding mainstream investments. Such investors generally have a higher risk appetite; they are used to volatility and aren’t afraid of new things. This has resulted in increasing acceptance of cryptoassets as an effective asset class for diversification of portfolio risk.”
He concluded by saying that Gulf states ought to be credited for clarifying regulations and enhancing ease of business. “Rather than stifle digital assets and the innovations they are spawning with overzealous regulation, Gulf governments appear content to give these technologies room to develop within sensible parameters.”