Regulation
Here’s why MENA is the fastest growing crypto market in the world
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The Middle East region is one of the fastest growing cryptocurrency markets in the world, valued at $389.8 billion between July 2022 and June 2023, blockchain researcher Chainalysis said in a report last September.
Although the region’s crypto footprint is relatively small globally, according to crypto exchange Bitget, adoption has exploded with around 500,000 daily traders. The adoption of digital assets in the Middle East is being accelerated by young tech-savvy people with relatively high disposable incomes and already confident in the value of cryptocurrencies.
Given these adoption trends and robust regulatory landscapes, the region has become the Wall Street of the crypto market.
GCC countries, particularly the UAE and Bahrain, have invested significant time and resources to burnish their image as emerging crypto-friendly hubs – efforts that have attracted some of the biggest names in the sector to the region, notably Binance and OKX.
“The UAE has transformed itself into a global crypto hub by adopting innovation-friendly regulatory frameworks that enable revolutionary crypto platforms to grow with oversight that ensures consumer safety,” 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 billion as of May 17, 2024, cryptocurrency is more than just a new asset class, it represents a fundamental shift in the way assets are managed and verified.
Blockchain technology, a decentralized ledger system of all transactions on a peer-to-peer network that allows participants to confirm transactions, has made verifiable digital ownership a reality, a feat that was unattainable before its creation.
Staying Ahead
The fall of crypto titans – Changpeng “CZ” Zhao of Binance and Sam Bankman-Fried (SBF) of FTX – sent shockwaves through the industry, revealing systemic vulnerabilities and calling into question stability and reputation of the ecosystem as a whole.
These failures have highlighted why stricter financial regulation and oversight can help address many concerns surrounding crypto assets – a trend that is on full display in the Middle East region, where governments are building a regulatory architecture around the sector .
“Providing clarity to the industry on risk parameters with defined safeguards for permitted operations, the Virtual Assets Regulatory Authority (VARA) has been about engaging and enabling the convergence of TradFi and DeFi, has so far been effective in building business confidence and investment security,” says Deepa Raja Carbon, Managing Director and Vice President of VARA.
The UAE and Bahrain have become the world’s crypto hubs, thanks to innovation-friendly regulatory frameworks that allow crypto platforms to grow with oversight ensuring consumer safety, according to blockchain analytics firm Chainalysis.
The implementation of crypto-friendly regulations has attracted several crypto entrepreneurs and enthusiasts in the GCC, which explains the increased use of decentralized finance (DeFi) in the region. Over the years, regulators have issued more than 30 licenses and passed a series of laws allowing crypto exchanges to operate in their respective financial centers.
Vijay Valecha, chief investment officer of Century Financial, believes that the UAE has become 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 regulation in other markets.
Dubai’s cryptocurrency regulator VARA has awarded 19 regulated Virtual Asset Service Provider (VASP) licenses, 11 of which are already operational, positioning the city as a responsible hub for digital assets.
Binance, the world’s largest crypto exchange by trading volume, reportedly received its full crypto license from VARA in April. The cryptocurrency platform also holds Bahrain’s Category 4 license, allowing the cryptocurrency exchange to operate as a crypto-asset exchange and custody service provider.
Carbon notes that VARA adopts a proactive and agile regulatory posture, often referred to as “living regulations.”
“VARA’s regulatory guidance is dynamically updated to keep pace with technological advancements and market developments in the VA space,” she explains.
Other exchanges that have evolved to take advantage of the GCC region’s crypto-friendly regulatory environment include Bybit, Rain, and Crypto.com.
Meanwhile, Saudi Arabia declared bitcoin illegal in 2018, but the country’s central bank appointed Mohsen Al Zahrani to lead its central bank virtual assets and digital currency program in 2022, signaling potential ambitions of the kingdom in terms of cryptography.
As financial regulators around the world consider how to align cryptocurrencies with existing frameworks, VARA, Abu Dhabi Global Market and the Central Bank of Bahrain seek to stay ahead of the curve by providing clarity to businesses, investors and financial professionals in the field of cryptocurrencies.
Growth potential
The GCC region has set the pace globally with its crypto initiatives, but the race has only just begun. The entry of global players into the local market has created a thriving ecosystem that contributes to the government’s vision of increasing the country’s GDP through the digital economy.
A study by financial services company Holborn Assets has found that interest in cryptocurrencies is increasing in the UAE. In total, 29 percent of users view cryptocurrencies as a more convenient way to hold assets, 34 percent are cryptocurrency traders, and 22 percent use cryptocurrencies for their daily payments.
Similarly, Saudi Arabia saw a 12% increase in cryptocurrency trading volume between 2022 and 2023, according to a report by Chainalysis. Saudi users are investing in commodity cryptocurrencies such as Bitcoin and Ethereum in spot markets to further diversify their assets, and the country’s institutional users are also increasingly interested in investing in cryptocurrencies. cryptocurrencies.
On the macro side, the decision by the U.S. Securities and Exchange Commission to approve spot Bitcoin exchange-traded products (ETFs) and the London Stock Exchange to accept applications for exchange-traded notes (ETNs) Bitcoin and Ethereum will open up investment in digital assets. landscape for institutional investors.
Going forward, GCC regulators seek to foster innovation and market growth while being cautious about the potential misuse of cryptocurrencies for sanctions evasion, fraud, financing terrorism and money laundering. Industry experts say a favorable regulatory environment will provide a platform for innovation and healthy competition.