The news that the flag carrier of the United Arab Emirates (UAE), Emirates, is planning to accept payments in Bitcoin is a turning point in the country’s long-standing ambition to become one of the leading hubs of digital assets in the world. become. At an exchange in May, Emirates COO Adel Ahmed Al-Redha publicly stated that the airline would not only accept Bitcoin but also planned to add collectibles NFT on the company’s website for trading.
This decision sends a clear message to the world that the UAE’s efforts to become one of the most digital-friendly countries in the world are gaining momentum. The Emirate of Dubai has further demonstrated this commitment to the virtual economy with historic regulatory progress in early 2022, in stark contrast to the more cautious approach of some Western regulators.
Timely Crypto Move from Dubai
Dubai’s focus on digital assets and cryptocurrency means the emirate is well positioned to take advantage of the industry’s massive growth. Total venture capital investments in crypto and blockchain startups exceeded $30 billion, with more than $10.5 billion in the last quarter of 2021 alone, according to Gemini’s 2022 Global State of Cryptography Report. The market cap of cryptocurrencies reached nearly $3 billion in 2021 and Bitcoin hit an all-time high of over $65,000, making crypto the best-performing asset class of the past decade, according to the report.
In February 2022, Dubai announced a regulatory framework for virtual assets, including cryptocurrencies, in what many see as the emirate’s accelerated bid to become a leading digital asset hub. In addition, a new regulatory body has been created, the Virtual Assets Regulation Authority (VARA) in Dubai. In May 2022, VARA became the first supervisor to be present in the metaverse with the establishment of its metaverse headquarters. VARA’s virtual presence will serve as a primary channel to engage global virtual asset service providers in launching applications, welcoming new licensees, sharing expertise and fostering global interoperability.
While the new regulatory framework is designed to increase foreign direct investment (FDI) in the crypto sector, the ultimate attractiveness of the UAE as a center for crypto investment will depend on the details in the framework when it will be available, said Caroline Malcolm. , head of international policy at crypto analytics platform Chainalysis. “What’s clear is sort of a top-down message about a holistic framework with government support to do this — and that’s the key to progress,” she says.
Malcolm uses the example of the proposed European Commission regulation on crypto-asset markets to ask whether this type of overlicensing network model can be applied in the UAE. “We do not yet know whether a company investing in the UAE has passport rights to operate in all UAE states or whether it has the right to offer services in other parts of the region,” she says.
Clear Regulation Boosts Dubai Crypto FDI
After official announcements in the United Arab Emirates in February 2022, crypto exchange Bybit announced plans to move its headquarters from Singapore to Dubai. In addition, crypto exchange Crypto.com has launched an aggressive recruiting campaign in the emirate and controversial crypto exchange Binance has announced plans to move its regional headquarters to Dubai. Binance, in particular, has become the litmus test of how open an economy is to developing a cryptocurrency ecosystem. FDI of cross-border Binance expansions has become a polarizing issue among global regulators. In May 2022, France licensed the crypto exchange to operate in the country, while US and UK regulators conduct ongoing investigations into the company’s financial behavior.
Malcolm sees a shift in the UAE’s focus on compliance and welcomes the proposals for regulatory frameworks. However, she warns that Dubai’s financial regulator should pay close attention to compliance with the new crypto framework. “The message is clear that this is what they intend to do,” she says. However, to attract businesses, jurisdictions need to be strongly committed to compliance.
Binance’s domestic investment is an important step in the emirate’s bid for global crypto supremacy, said Mohamed Al Nuwais, a trade analyst at Deloitte. When Binance opens its new offices in Dubai, it will become the largest cryptocurrency exchange in the Middle East. Al Nuwais says Binance and other exchanges including FTX, Kraken, Crypto.com and ByBit have all committed to investing in Dubai. The ripple effect will be that Dubai will attract the world’s top talent, allowing a crypto ecosystem to grow. “Add to that the UAE’s blockchain strategy and you see that we are a nation that thrives on innovation,” says Al Nuwais.
In line with this national focus on innovation and its futuristic economic ambitions, Dubai has fully embraced the metaverse concept and established a digital twin city in a virtual world called One Human Reality.
According to Al Nuwais, all of these innovations are making their way into one of Dubai’s top three players in the crypto ecosystem. These are the Dubai World Trade Center Free Zone, where Binance will establish its headquarters in the Middle East; Dubai International Financial Center, a free zone in the financial center, established in 2004; and the Dubai Multi Commodities Center, established in 2002 as a global commodities trading center.
While Al Nuwais sees massive growth and mass adoption of crypto in Dubai, he says the currency “still needs time”. Dubai has yet to fully roll out its central bank digital currency (CBDC) and Al Nuwais sees this as an important test for the emirate’s digital money as a whole. The UAE’s CBDC ranks seventh globally in PwC’s Global CBDC Index and Stablecoin Preview 2022. The country’s central bank is currently investigating and testing the possibility of issuing a wholesale CBDC.
With recently announced political will and regulatory clarity already attracting crypto FDI, the emirate of Dubai is pushing hard for continued global business and consumer interests in cryptocurrencies. While many national regulators have resisted the volatility and regulatory challenges posed by cryptocurrencies, it appears Dubai is addressing these challenges head on.