High crypto adoption rate drives UAE’s digital economy
Options for using cryptocurrencies across the seven emirates that make up the United Arab Emirates continue to grow. Visa’s Back to Business Global Study – 2022 SMB Outlook found that every small business owner surveyed in the UAE said they planned to accept some form of digital payment this year, with more than one-third (35%) indicating a willingness to accept cryptocurrencies such as bitcoin.
And it is not just goods that Emiratis can pay for with digital currency. Dubai-based international school Citizens School has announced that it will accept tuition payments in bitcoin and ethereum when it opens its doors to its first intake of students in September.
Ethereum to US dollar (ETH/USD)
According to a report published by YouGov last month, 15% of UAE residents surveyed had owned/held, bought or paid with cryptocurrency in the previous three months.
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UAE has high trust in crypto
Trust in cryptocurrencies was higher in the UAE than in any of the other 17 markets covered in the report, with two-thirds of UAE residents interested in investing in or trading crypto over the next five years.
The Chainalysis 2021 Geography of Cryptocurrency Report notes that the UAE received more cryptocurrency than any Middle Eastern country except Turkey last year.
Remittances makeup 2.4% of total gross domestic product for the Middle East, much of which comes from the UAE where migrant workers sending money home have made it the third-biggest source of remittances worldwide.
The level of public confidence in cryptocurrencies highlighted in the YouGov report suggests the UAE government and regulators are doing a good job of promoting the emirates as a location for crypto businesses, as does the decision of a number of exchanges to set up operations in the emirates.
Exchanges relocate to Dubai
This month, Bybit announced that it was relocating its business to Dubai and rival bourse Crypto.com confirmed that the emirate is its new regional hub. Also in March, BitOasis received provisional approval from the newly established Dubai Virtual Asset Regulatory Authority and virtual licences were granted to Binance and FTX Europe.
In addition, India’s decision to tax earnings from cryptocurrency at 30% is expected to encourage at least some Indian exchanges to follow in the footsteps of Polygon and shift some or all of their operations to the UAE.
“The UAE is taking a notably different approach to many jurisdictions by clearly signalling to the global crypto industry that it is the place to operate out of,” says Bill Hughes, director of global regulatory matters at blockchain software technology company ConsenSys.
“It is passing straightforward regulations that allow for easier registration for many crypto businesses than they would experience elsewhere.”
How does geography help the UAE’s crypto sector?
Beyond regulatory activity, the UAE’s geographic position presents a sizable market for digital asset platforms to tap into.
Securrency director of policy Jackson Mueller – Photo: Securrency“Its proximity to billions of people spread across several nearby markets presents firms with incredible opportunities for growth in the larger Gulf Cooperation Council region,” says Jackson Mueller, director of policy at blockchain-based financial markets infrastructure company Securrency.
“With a sizable number of financial firms and activity within ADGM (Abu Dhabi Global Market) and DIFC (The Dubai International Financial Centre), this concentration presents opportunities for collaboration between traditional finance and the digital sector.”
Last month, UAE-based venture capital firm Cypher Capital launched a $100m blockchain crypto private seed fund to invest in blockchain, crypto and other digital asset projects.
Cypher Capital is an investor in Crypto Oasis Sentio, the early investment arm of blockchain ecosystem Crypto Oasis which has plans to invest up to $10m across between 50 and 100 crypto projects.
Influx of talent into the UAE
The UAE crypto ecosystem is growing rapidly, driven by an active community and exchange between entrepreneurs, investors, researchers and government authorities, says Saqr Ereiqat, co-founder and managing partner of Crypto Oasis.
“Throughout the pandemic we have witnessed an influx of talent into the region,” he adds. “A significant number (40%) of the organisations in our ecosystem are native blockchain technology businesses – solution providers that enable real life use cases.”
As noted above, the UAE’s large expat population makes it a significant market in terms of remittances. But Ereiqat says value transfer goes beyond trading and sending money abroad into areas such as virtual art, sports and real estate.
Active in NFTs and the metaverse
“Artists such as Amrita Sethi and Sacha Jafri are leveraging NFTs to create immersive experiences and transfer their creativity into new channels and are now able to overcome limitations of time and location, and enhance their engagement with audiences across the globe,” Ereiqat says.
Traditional, non-digital players have started to launch metaverse initiatives. The Dubai municipality has recently announced plans to create a virtual replica of Dubai in the metaverse, allowing for use cases in gaming and education.
Crypto Oasis co-founder and managing partner Saqr Ereiqat – Photo: Crypto OasisReal estate developer DAMAC Properties is launching a metaverse project and Emirates Post has issued NFT postmarks.
Ereiqat believes recent developments have made it easier to trade and use crypto in the UAE, although he also acknowledges that there is still a long way to go to achieve wide scale adoption.
Empire Token CEO, Abdullah (Dulla) Ghandour, which last month announced plans for an all-in-one decentralised finance (DeFi) application designed to consolidate tools and applications for swaps, trades and networking.
He says the UAE’s creation of a dedicated entity for crypto regulation shows how serious it is about being a leader in this space.
How long before crypto is used for payment in the UAE?
“The UAE has a number of advantages as a location for crypto and blockchain activity because it is a hub for business,” Ghandour says.
“We will soon see crypto being accepted as a form of payment in a country that is already developed and advanced.
“The UAE’s geographical location between Asia, East Asia, the Middle East and Europe makes it easier to attract blockchain and crypto investors and the prosperity of the country is a further attraction.”
As for the UAE’s long term prospects, Hughes acknowledges that its success will be determined by whether the rest of the regulatory world deems its safeguards against illicit finance to be sufficiently robust.
Will UAE or Singapore become the global crypto hub?
“If the controls are too lax and disreputable businesses flock to the country, there are mechanisms through which to cut off the UAE crypto market from the rest of the financial system,” Hughes says.
“That would make it decidedly less attractive to most players in the crypto market.”
Zennon Kapron, managing director of fintech-focused strategic consulting firm Kapronasia agrees that the UAE needs to stay on the right side of the fine line between imposing too much regulation and restricting growth, and creating a loose environment that risks flaunting global norms and practices.
“Many crypto players that have been unsuccessful in other jurisdictions like Singapore are playing a game of regulatory arbitrage and moving to jurisdictions such as the UAE where the regulations seem to be easier,” he says.
“Whether it is the UAE or Singapore that has the right standards and requirements in place remains to be seen.”
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