Regulation
That’s why the MENA region is the fastest growing cryptocurrency market in the world
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The Middle East region is one of the fastest-growing cryptocurrency markets in the world, with an estimated value of $389.8 billion between July 2022 and June 2023, blockchain researcher Chainalysis said in a report last September.
While the region’s crypto footprint is relatively small in global terms, adoption has skyrocketed with around 500,000 daily traders, according to cryptocurrency trading platform Bitget. The adoption of digital assets in the Middle East is being accelerated by young, tech-savvy adopters with relatively high disposable incomes who are already confident in the value of cryptocurrencies.
Considering these adoption trends and the robust regulatory landscape, the region has emerged as the Wall Street of the cryptocurrency market.
GCC countries, particularly the United Arab Emirates and Bahrain, have invested significantly time and resources to burnish their image as emerging crypto-friendly hubs – efforts that have attracted some of the industry’s biggest names to the region , including Binance and OKX.
“The UAE has transformed itself into a global crypto hub by passing innovation-friendly regulatory frameworks that enable the development of game-changing crypto platforms with oversight that keeps consumers safe,” according to Chainalysis.
Industry experts say the UAE is a valuable example of how regulatory clarity and rules designed to enable innovation can allow countries to establish themselves as crypto hubs, strengthening the local economy.
With a market value of $2.53 trillion as of May 17, 2024, cryptocurrency is more than just a new asset class, it represents a fundamental shift in how assets are managed and audited.
Blockchain technology, a decentralized ledger system of all transactions across a peer-to-peer network that allows participants to confirm transactions, has made verifiable digital ownership a reality, a feat unattainable before its inception.
Keep up with the times
The fall of cryptocurrency titans – Binance’s Changpeng ‘CZ’ Zhao and FTX’s Sam Bankman-Fried (SBF) – has sent shockwaves through the industry, exposing systemic vulnerabilities and testing the ecosystem’s stability and reputation in general.
These failures highlight why stronger financial regulation and oversight can help address many concerns about cryptocurrencies, a trend that is on full display in the Middle East region, where governments are building regulatory architecture around the sector.
“Providing clarity to the industry on risk parameters with defined limits for permitted operations, the Virtual Assets Regulatory Authority (VARA) has been to engage and enable the convergence of TradFi and DeFi, so far it has been effective in strengthening business confidence and investment security,” says Deepa Raja Carbon, CEO and Vice President of VARA.
According to blockchain analytics firm Chainalysis, the UAE and Bahrain have emerged as the world’s crypto hubs, thanks to innovation-friendly regulatory frameworks that allow crypto platforms to develop with oversight that keeps consumers safe.
The implementation of cryptocurrency-friendly regulations has attracted several cryptocurrency entrepreneurs and enthusiasts in the GCC, which explains the growing use of decentralized finance (DeFi) in the region. Over the years, regulators have issued more than 30 licenses and passed a number of laws for cryptocurrency exchanges to operate in their respective financial centers.
Vijay Valecha, Chief Investment Officer at Century Financial, believes the UAE has emerged as a major cryptocurrency hotspot due to a combination of factors. He explains that these factors include the country’s rational, industry-friendly regulations and the unfavorable state of cryptocurrency regulations in other markets.
VARA, Dubai’s cryptocurrency regulator, has awarded 19 VASP (regulated virtual asset service providers) licenses, of which 11 are already operational, positioning the city as a responsible hub for digital assets.
Binance, the world’s largest cryptocurrency exchange by trading volume, reportedly received its full crypto license from VARA in April. The cryptocurrency platform also holds Bahrain’s Category 4 license, which allows the cryptocurrency exchange platform to operate as a cryptocurrency exchange and custody service provider.
Carbon notes that VARA takes a proactive and agile regulatory stance, often referred to as “living regulation.”
“VARA regulatory guidelines are dynamically updated to keep pace with technological advances and market evolutions within the VA space,” he explains.
Other exchanges that have moved to take advantage of the GCC region’s crypto-friendly regulatory environment include Bybit, Rain and Crypto.com.
Meanwhile, Saudi Arabia outlawed bitcoin in 2018, but the country’s central bank appointed Mohsen Al Zahrani to lead its virtual assets and central bank digital currency program in 2022, signaling the potential crypto ambitions of the kingdom.
As financial regulators around the world deliberate on how to align cryptocurrency with existing frameworks, VARA, Abu Dhabi Global Market and the Central Bank of Bahrain seek to move with the times by providing clarity to businesses, investors and financial professionals in the cryptocurrency sector.
Potential growth
The GCC region has set the global pace with its crypto initiatives, but the race is only just beginning. The entry of global players into the local market has created a thriving ecosystem that contributes to the government’s vision of increasing the national GDP through the digital economy.
A study by financial services firm Holborn Assets found that interest in cryptocurrencies is on the rise in the United Arab Emirates. A total of 29% of users consider cryptocurrencies to be a more convenient way to hold assets, 34% are cryptocurrency traders, and 22% use cryptocurrencies for daily payments.
Similarly, according to a report by Chainalysis, Saudi Arabia recorded a 12% increase in cryptocurrency trading volume from 2022 to 2023. Saudi users invest in key cryptocurrencies such as bitcoin and ethereum in spot markets to further diversify their own assets and also institutional users in the country are increasingly interested in investing in cryptocurrencies.
On the macro front, the US Securities and Exchange Commission’s move to approve spot bitcoin exchange-traded products (ETFs) and the London Stock Exchange to accept applications for bitcoin and ethereum exchange-traded notes (ETNs) will open up investment into digital assets. panorama to institutional investors.
Looking ahead, GCC regulators seek to promote innovation and market growth while being cautious about the potential misuse of cryptocurrencies for sanctions evasion, fraud, terrorist financing and money laundering. Industry experts say a facilitative regulatory environment will provide a platform for innovation and healthy competition.