The Bitcoin boom has attracted worldwide attention and has seen its price increase fourfold since November 2022. This is not unusual.
Cryptocurrencies like Solana, Telegram’s Ton, and Cardano’s Ada are posting numbers that make traditional markets seem asleep.
These digital tokens have consistently outperformed the Nasdaq over the past 12 months, with Solana's market cap expanding nine-fold and Ton and Cardano more than doubling in value.
As digital token creators grow, they want a regulatory environment that fosters their growth, not hinders it.
In an interview with cryptocurrency news site CoinDesk last week, Raja Kumar, chairman of the Financial Action Task Force (FATF), said:), As of June 2023, it said, fewer than 30% of jurisdictions around the world have begun regulating the cryptocurrency sector.
Citing consumer protection concerns, a growing number of regulators are introducing strict measures to limit the growth of cryptocurrency companies.
The lack of jurisdictions with sound regulation and a growing “regulatory winter” for cryptocurrencies has left companies searching for new markets for growth.
Global Regulatory Map
These days, it is becoming harder to find a suitable country to become a cryptocurrency hotspot.
China has banned cryptocurrencies since 2021, and India banned several cryptocurrency exchanges in the country in December, affecting 40% of the planet's population.
In the United States, FTX founder Sam Bankman Freed was sentenced to 25 years in prison last week for his role in the cryptocurrency exchange's collapse in 2022. Meanwhile, Binance founder Changpeng Zhao is also facing prison time as part of a plea deal with the US Department of Justice.
New York State has one of the most strict and labor-intensive cryptocurrency licensing regimes in the world, but it's not the strictest – that title goes to Europe.
The EU is drafting perhaps the world's strongest cryptocurrency bill, which would allow governments to regulate crypto companies outside the euro zone and impose fines of up to 12.5% of a company's annual turnover.
The European Securities and Markets Authority's fine is more than six times that of the EU's General Data Protection Regulation, which runs into billions of euros.
Ulrich Bindseil, head of the European Central Bank's Market Infrastructures and Payments department, made his position on cryptocurrencies clear in a blog post in February, saying that “Bitcoin's fair value remains zero” and that it poses a risk to society.
Drafting tougher laws is not unique to Europe.
Traditional crypto hotspots including the British Virgin Islands and the Cayman Islands have faced pressure from Western financial regulators to crack down on digital asset companies, and passed legislation last year requiring cryptocurrency firms to meet strict legal obligations or cease operations.
In Asia, Singapore will ban cryptocurrency public service announcements in 2022 and, more recently, banned the use of local credit cards to purchase digital payment tokens.
It also introduced strict capital reserve requirements, forcing banks to hold $125 in capital for every $100 of exposure to cryptocurrencies such as Bitcoin.
In short, the regulatory winds are forcing crypto banks, institutional investors and would-be Web3 founders to find new home.
Many cryptocurrency businesses around the world have expressed the need for a welcoming, crypto-friendly country that will not give them the cold shoulder and will play by the rules.
The cryptocurrency capital of the world
Institutional adoption is on the rise: It's no secret that banks and financial services in the UAE are actively exploring ways to offer virtual asset services to their clients.
The UAE is not alone: Switzerland, although a smaller country, has also transformed itself from a traditional financial banking center into a major hub for digital assets.
Miami is also fast becoming a crypto financial hub in the Western world, driven in part by Mayor Francis Suarez, who receives part of his salary in Bitcoin and has pushed for regulations that would allow San Francisco-based crypto exchange Kraken and Wyoming-based crypto bank Avanti to become licensed banks.
Suarez, whose net worth has more than doubled to $3.5 million in 2023 compared to the previous year, according to Bloomberg, is also exploring ways to receive his taxes in Bitcoin and pay them to city officials.
Miami has attracted about $1.2 trillion in assets under management since 2019, Suarez said in a 2021 interview. NPR “By the end of last year, the city had become the ninth-largest in the nation for the number of billionaires, despite having a population of fewer than 500,000, according to London-based investment relocation consultancy Henley & Partners.
Investors and talent head to the UAE
The UAE is carving out a niche position as one of the world's next fastest growing cryptocurrency hubs, with institutional investors, hedge funds and financial giants on board.
Standard Chartered Bank, Franklin Templeton and Mastercard are relocating or expanding their cutting edge digital asset services, assets and a growing number of staff to the country.
The family office of Ray Dalio, founder of the world's largest hedge fund Bridgewater, and AQR Capital Management, a major quantitative investment firm, have bases in Abu Dhabi.
Brevan Howard is doubling its London headcount from 60 to 120. This is not just a vote of confidence but a strategic move by three prominent institutional investors.
Dubai, about 90 minutes by highway from the UAE capital, had 40 funds registered as of July 2023, a third of which had arrived in the past 12 months, mainly from London and New York.
The UAE is slowly becoming the epicenter of economic upheaval
Sam Brattis, CEO of Mena Catalyst
The influx of institutional capital into the UAE has also attracted cryptocurrency-related companies, including Crypto.com, Coinbase, America's Paxos, Nomura's Laser Digital and Circle, which runs a $28 billion US stablecoin fund, all of which are based in the UAE.
Second, world-class talent is moving here: Telegram founder Pavel Durov moved to Dubai to create Ton, the multi-billion dollar digital coin for the company's 900 million users.
Guillaume Pouzat, founder and CEO of Checkout.com, a fintech valued at $9.4 billion that processes cryptocurrency payments globally for Crypto.com, lives in Dubai.
Charles Hoskinson, co-founder of Ethereum and Cardano, which have a market capitalization of $21.14 billion, also showed up in the UAE, but this is just the beginning.
They come not just for the warm weather, but for the warm welcome they receive. These are not basic business development activities; they are strategic alignments backed by the UAE's deliberate masterplan.
Dubai's two major upcoming crypto forums, Token2049 and Dubai Fintech Summit, taking place in April and May respectively, are designed to attract crypto innovators seeking a supportive environment.
The Gulf state has six regulatory authorities that issue crypto-related licenses and provide the “rules” for companies operating there.
The company has established a mission-focused regulatory body in the UAE in the form of the Dubai Virtual Asset Regulatory Authority.
The Abu Dhabi Global Market, also known as the United Arab Emirates capital's Wall Street, introduced regulations last year to make it easier for decentralized cryptocurrency companies to operate there and issue separate digital tokens. Similar to virtual gift cards, tokens are ultimately digital assets that can be owned, traded or used for specific purposes online.
The UAE Central Bank has allowed legitimate cryptocurrency companies to open bank accounts, which is often a major challenge for crypto multinationals. Rather than creating operational obstacles, the country is working with decentralized finance companies to find solutions for real-world use cases.
Local Use Cases
Customers in the UAE can now use cryptocurrency to buy dinner at a growing number of restaurants, or buy groceries on Kuwait-founded delivery app Talabat using crypto gift cards from third-party apps.
DAMAC, one of the country's largest real estate companies, also allows users to purchase homes with digital currencies such as Ether and Bitcoin through a third-party app.
These use cases go beyond simply providing a service; they are gradually building the economy of tomorrow. The way money is transacted is fundamental, and the introduction of cryptocurrencies helps bring 21st century “plumbing” to the financial economy.
Although the UAE has a ripe environment for growth, there are obstacles that companies may face as they look to expand: UAE regulators have enacted strict know-your-customer rules, strengthened enforcement, and raised standards.
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Obtaining a full cryptocurrency operating license from a country's financial authorities requires a significant investment, including obtaining licenses, hiring, and building a customer pipeline.
The race to make a presence in one of the few highly regulated and pro-crypto environments in the world is not going to be cheap, and it is gradually intensifying as more crypto pioneers land in the country.
Sam Brattis is CEO of Mena Catalyst, a market entry support company for Web3 multinationals expanding in the Gulf.
Updated: April 9, 2024 9:26 AM
