The news that United Arab Emirates’ (UAE) national airline, Emirates, plans to accept payment in Bitcoin is a defining moment in the country’s long held ambition to become one of the world’s leading digital asset hubs. At a trade show gathering in May, Emirates chief operating officer Adel Ahmed Al-Redha went on the record to say the airline will not only accept Bitcoin but plans on adding NFT collectibles on the company’s website for trading.
The move is a clear message to the world that the UAE’s efforts to become one of the most digitally friendly countries in the world is gaining momentum. The emirate of Dubai further demonstrated this commitment to the virtual economy with landmark regulatory advances in early 2022 in stark contrast to more cautious approaches by some Western regulators.
Dubai’s timely crypto move
Dubai’s focus on digital assets and cryptocurrency means the emirate is well placed to capitalise on the sector’s massive growth. Total venture capital investment in crypto and blockchain start-ups has exceeded $30bn, with more than $10.5bn coming in the last quarter of 2021 alone, according to Gemini’s 2022 Global State of Crypto report. Cryptocurrency market capitalisation hit almost $3trn in 2021 and Bitcoin reached an all-time high of more than $65,000, making crypto the best-performing asset class of the past ten years, 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, Dubai’s Virtual Assets Regulation Authority (VARA), was created. In May 2022, VARA became the first regulator to have a presence in the metaverse with the establishment of its metaverse headquarters. VARA’s virtual presence will serve as the primary channel to engage global virtual asset service providers to initiate applications, welcome new licensees, share expertise and drive worldwide 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 crypto investment hub will depend on the detail contained within the framework when it becomes available, according to Caroline Malcolm, head of international policy at crypto analytics platform Chainalysis. “What is clear is a kind of top-down message about a holistic framework with the government support to be able to do it – and that is essential in terms of making progress,” she says.
Malcolm uses the example of the European Commission’s proposed Markets in Crypto Asset regulation to pose the question as to whether this kind of supra-licensing network model may apply in the UAE. “We don’t know yet if a company investing in the UAE will have passporting rights to operate in all UAE states or whether it has rights to offer services in other parts of the region,” she says.
Regulatory clarity spurs Dubai’s crypto FDI
After the regulatory announcements in the UAE in February 2022, crypto exchange Bybit announced plans to move its headquarters from Singapore to Dubai. Also, crypto exchange Crypto.com has commenced an aggressive hiring campaign in the emirate and controversial crypto exchange Binance has announced plans to set up its regional headquarters in Dubai. Binance in particular has become the litmus test for how open an economy is to developing a cryptocurrency ecosystem. FDI from Binance’s cross-border expansions has become a polarising issue among global regulators. In May 2022, France granted the crypto exchange a licence to operate in the country, while both US and UK regulators have ongoing financial conduct investigations into the company.
Malcolm sees a shift in the UAE’s greater focus on compliance and welcomes the proposals for a regulatory framework. She cautions, however, that Dubai’s financial regulatory authority must pay detailed attention to compliance under the new crypto framework. “The messaging is clear that that is what they intend to do,” she says. However, attracting businesses requires jurisdictions to have made a high level of commitment to compliance.
Binance’s inward investment is a significant milestone in the emirate’s bid for global crypto supremacy, says Deloitte business analyst Mohamed Al Nuwais. When Binance opens its new offices in Dubai it will become the biggest 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 knock-on effect will be that Dubai will start to attract the best global talent, enabling a crypto ecosystem to develop. “Add to this the UAE’s blockchain strategy and you see we are a nation that thrives on innovation,” says Al Nuwais.
In line with this nationwide focus on innovation and its futuristic economic aspirations, Dubai has fully embraced the concept of the metaverse, establishing a digital twin city in a virtual world called One Human Reality.
All of these innovations find a home with one of Dubai’s three major players in the crypto ecosystem, according to Al Nuwais. They are the Dubai World Trade Centre free zone, where Binance will set up its Middle East headquarters; Dubai International Financial Centre, a financial hub free zone established in 2004; and the Dubai Multi Commodities Centre, established in 2002 as a hub for the global commodities trade.
Although Al Nuwais sees tremendous growth and mass adoption of crypto in Dubai, he says the currency “still needs time”. Dubai has yet to fully deploy its central bank digital currency (CBDC) and Al Nuwais see this as a key test for the emirate’s digital cash overall. The UAE’s CBDC ranked seventh globally in PwC’s Global CBDC Index and Stablecoin Overview 2022. The country’s central bank is currently exploring and testing the possibility of issuing a wholesale CBDC.
With the political will and newly announced regulatory clarity, which is already attracting crypto FDI, the emirate of Dubai is betting hard on global business and consumer interest in cryptocurrencies to continue. While many country regulators have balked at the volatility and regulatory challenges that cryptocurrencies present, Dubai, it seems, is meeting those challenges head on.