DUBAI — 2023 was an intriguing year for the crypto community. Bitcoin, the de facto benchmark for the market’s performance, reached its peak for the year, showing a 134% increase compared to the previous year. At the same time, the sector continued to feel the aftershocks of the FTX collapse, as government agencies worldwide, including the U.S. Justice Department, embarked on anti-money laundering (AML) crackdowns.
In the UAE, under the desert sun, the so-called crypto winter has thawed. A recent Chainalysis study indicates that institutional investment now drives the majority of cryptocurrency transactions in the country. This is a clear affirmation of the government’s implementation of forward-thinking regulations for crypto activities. For instance, Dubai’s Virtual Assets Regulatory Authority (VARA), established in 2022, oversees the Emirate’s crypto sector, ensuring investor protection and demanding international governance standards from all industry players.
MENA crypto markets are maturing
The UAE’s success with crypto regulation is not surprising. The country’s regulators have been exceptionally adept at recognizing the potential economic benefits of new technologies and providing a supportive environment for early adopters. Enterprises here have been afforded numerous opportunities to be at the forefront of innovation. Cryptocurrency is the latest example. And, as this technology reaches a critical mass, regulation is again timely. Cryptocurrency is currently experiencing growth in both retail and institutional adoption.
However, where many countries have been reticent to embrace crypto, outright bans are now widely viewed as impractical. In Saudi Arabia, despite the ‘quasi-legal’ status of cryptocurrencies, the crypto economy grew more in the past year than in any other country, with a year-over-year transaction volume increase of 12%. Given that consumers and now even institutions are not just expressing interest but also actively engaging, it is more prudent for regulators to act as guides rather than censors. By endorsing best practices, government regulators can foster markets with appropriate safeguards, thereby promoting stable and confident growth in digital assets.
Apart from VARA, the UAE is home to specialized organizations like the Financial Services Regulatory Authority of Abu Dhabi Global Market (ADGM). Forward-thinking governments lead by example, creating an atmosphere of calm that fosters bolder experiments and added value. Few countries in the region can rival the UAE in crypto regulation. VARA has published 12 rulebooks that provide comprehensive guidance on everything from AML and market conduct to data security and marketing recommendations.
Sending a clear signal
In 2024, a nation with a government silent on crypto, or actively opposing it, will not be the preferred destination for global entrepreneurs. This is especially true when compared to attractive options like the UAE, where a Virtual Asset Service Provider (VASP) can confidently understand their daily standing. They know the government’s stance on the sector because it has been clearly articulated. Business founders can plan accordingly within a vibrant crypto community, supported by a government that embraces innovation.
This environment also attracts local and international investors, which explains the increase in transactions from both consumers and institutions, and the growing dominance of the latter. The appeal of crypto as an investment vehicle is increasingly evident. Concurrently, there’s a rising popularity in DeFi (decentralized finance), attracting more sophisticated investors.
As we progress through 2024, we can expect to see more of this trend. The UAE government’s actions send a clear signal: it recognizes the potential of digital assets to offer a wide range of benefits to both retail and institutional segments. Its regulations reflect an orderly ecosystem, more predictable than those emerging from ad hoc maverick enterprises with minimal oversight.
The right tech
In the UAE, now that regulations are established, both large and small crypto players will expect government agencies to lead in adopting technology platforms, particularly those related to digital asset risk management. Once the government makes its move, the private sector is likely to align and follow suit.
Chainalysis has witnessed this leadership firsthand. Through our partnership with the UAE Ministry of Artificial Intelligence, Digital Economy, and Remote Work Applications, we provide training for the nation’s government departments. During our engagement, we engaged in in-depth discussions with senior leaders from key public-sector financial institutions who are eager to launch their own crypto-centric services.
As 2024 unfolds, we anticipate that both private and public enterprises will increase their investments in the infrastructure and services of the crypto ecosystem. This trend bodes well for the growth of the UAE’s crypto sector. There’s every reason to believe that institutional investment will continue to gain momentum. The more it does, the more confidence will grow, attracting additional innovators and more retail and institutional investors. This sustainable growth spike could lead to crypto use cases outpacing those in traditional finance. Following this trajectory, the UAE’s prominence in the global crypto stage is seemingly assured.
Caroline Malcolm is Vice President, Global Public Policy, at Chainalysis.
The opinions expressed are those of the author and may not reflect the editorial policy or an official position held by TRENDS.