Memos 
Live events & webinars 
Trend Reports
Gulf primed to capture more crypto business, but volatility may mute returns
Al-Monitor Pro Members
Samuel Wendel
Senior Market Research Analyst, Al-Monitor
June 23, 2023
Amid an accelerating US crypto crackdown, the Middle East stands to benefit. In June 2023, the US financial regulator announced lawsuits against the world’s top two crypto exchanges, Binance and Coinbase — a development with important global implications for the embattled crypto industry. Only weeks before these lawsuits emerged, Coinbase’s CEO visited the UAE and signaled it could become a strategic hub for the US company. That would boost the UAE’s push to become a global leader in the cryptoeconomy and validate its continued embrace of the industry even following FTX’s catastrophic collapse in late 2022, which erased about $200 billion from the crypto market. Other Gulf states could also capture a slice of the industry, positioning the region to capitalize on Bitcoin’s next bull run — or get burned if more industry players implode.
- In the latest upheaval for the battered crypto industry, the US Securities and Exchange Commission (SEC) announced lawsuits against Binance and Coinbase in June 2023, alleging that the key crypto players violated securities laws.
- This comes after a turbulent 2022 headlined by the collapse of Bahamas-based exchange FTX: once valued at $32 billion, the industry darling’s November bankruptcy saw the crypto market shed roughly $200 billion in weeks and imperiled other industry players.
- This came as the Middle East’s crypto market — although small — grew faster than any other region in 2022, fueled by everything from permissive regulations to remittance payments, according to blockchain data platform Chainalysis.
- Still, FTX’s implosion was particularly awkward for the UAE, which is aggressively pushing into the cryptoeconomy. Although Bahrain was the Gulf’s early mover, the UAE enjoyed an influx of notable crypto companies in 2022, spurred by its favorable regulatory frameworks.
- Dubai established the Virtual Assets Regulatory Authority, or VARA, in March 2022, a specialized crypto regulator. Notably, VARA granted FTX a minimum viable product license in July 2022 (although it was revoked following its bankruptcy).
- Binance, the world’s largest crypto exchange, earned its minimal viable product license from VARA in September 2022, allowing it to offer virtual asset services to qualified investors. The company also secured a similar approval from the Abu Dhabi Global Market, or ADGM, the emirate’s financial free zone, in November 2022.
- The UAE’s regulatory regimes around virtual assets differ between jurisdictions and are still developing, but that hasn’t deterred companies. For instance, the Dubai Multi Commodities Centre, a free trade zone, has attracted over 500 crypto companies.
- Meanwhile, Bahrain’s crypto ecosystem is regulated by its central bank, which issued industry rules in early 2019. It granted Binance an initial approval as a crypto asset service provider in December 2021. Bahrain has also produced Rain, a homegrown cryptocurrency brokerage firm founded in 2017 that has raised roughly $120 million from investors.
- Not surprisingly, FTX’s collapse called into question the Gulf’s crypto embrace, as UAE investors reportedly made up 4% of FTX’s customers. However, neither the UAE nor Bahrain publicly backed away from their crypto policies.
- According to Bloomberg, UAE officials privately expressed concerns over the pace of regulatory approvals after FTX’s implosion, as well as the failure of cryptocurrency hedge fund Three Arrows Capital, which filed for bankruptcy in July 2022 shortly after news broke that it was relocating to Dubai from Singapore thanks to its friendlier regulatory environment.
- VARA did announce updated regulations in February 2023, aimed partially at combating ongoing illicit financial activities, while Dubai’s financial regulator warned in May that global watchdogs need to collaborate to avoid “bad actors” exploiting gaps in crypto rules.
- There have been setbacks: US-based Kraken, another major cryptocurrency platform, closed its Abu Dhabi office in February 2023, less than a year after receiving a local license. VARA also recently reprimanded the crypto startup Open Exchange (OPNX) for “unregulated activity.” Notably, OPNX was created by the founders of Three Arrows Capital.
- Companies continue receiving regulatory nods: in May 2023, VARA awarded Dubai’s BitOasis a minimum viable product (MVP) license, making it the first company allowed to provide broker-dealer services around virtual assets. Additionally, Singapore-based Crypto.com and Seychelles-based OKX both received MVP preparatory licenses from VARA in 2023.
- More licenses could be incoming as the United States cracks down on crypto, with industry companies increasingly exploring other options worldwide — headlined by Coinbase.
- Coinbase’s CEO visited the UAE in May 2023, during which it’s believed the exchange received approval to establish a base or regional headquarters in Abu Dhabi. However, there hasn’t been an official confirmation as of this writing. Regardless, Coinbase has already targeted opportunities in the Gulf — it participated in Rain’s $110 million Series B round in January 2022.
- Another US player eying the UAE is Gemini, an exchange founded by billionaire twins Cameron and Tyler Winklevoss, which in May 2023 announced intentions to apply for a UAE license.
- Binance’s ties to the UAE are also growing: in May 2023 the exchange appointed Richard Teng — the former CEO of ADGM’s Financial Services Regulatory Authority — to oversee its regional markets outside the United States. That positions Teng as the likely successor to current CEO Changpeng Zhao, known as CZ, and Binance’s senior leadership and regulators have reportedly discussed this possibility.
- Interestingly, the SEC currently can’t find CZ, complicating its lawsuit against Binance, which has long eschewed acknowledging an official headquarters. However, CZ is believed to spend significant time in Dubai, which he has described as the “Wall Street of Crypto.”
- Also noteworthy: Reuters reported in May 2023 that Binance had commingled customer funds with revenues in 2020 and 2021 — a breach of US financial rules and the same practice that contributed to FTX’s demise. Plus, investors pulled nearly $800 million in 24 hours from Binance and its US arm following the SEC charges, according to data firm Nansen.
- Ultimately, the UAE isn’t the only location attracting industry players seeking more hospitable environs. Coinbase recently launched a derivatives branch via Bermuda, while Ireland granted Kraken a license in April 2023.
- In June 2023, the Silicon Valley venture capital firm Andreessen Horowitz chose London over Dubai as the location for a new office targeting crypto investments, a cause for which it has raised $7.6 billion to pursue globally.
- Regionally, Saudi Arabia appears to be developing a crypto framework. In 2022, the Saudi central bank hired an executive to head its virtual assets and digital currency program.
Scenario 1: The UAE emerges as the cryptoeconomy’s leading global hub
As the United States crackdown accelerates, Dubai and Abu Dhabi lure key industry players to establish global offices in the Emirates. As the market rebounds, the UAE emerges uniquely positioned to fuel crypto’s next growth wave.
Still, competition for crypto industry growth should be robust from London to Hong Kong, not to mention within MENA, especially if Saudi Arabia develops an industry footprint.
Scenario 2: The UAE throws Binance a lifeline
Amid rising scrutiny and threats to its future, Binance appoints former UAE regulator Richard Teng as CEO and the exchange’s trajectory becomes increasingly dependent upon Emirati ambitions (and hospitality).
That said, a growing partnership with the UAE would require Binance to sacrifice its prized autonomy. The firm has also proved adept at both navigating turmoil and eluding the clutches of unfriendly regulators—so far.
The Middle East emerges as a winner from current upheaval in the cryptoeconomy, but many benefits may be fleeting. The UAE should enjoy continued industry growth as players flee unfriendly jurisdictions, but other global financial centers will be hot destinations too and others may increasingly emulate the Emirati strategy. Local competition should heat up too: Bahrain remains a viable regional crypto destination, while Saudi Arabia could reveal its regulatory framework in 2023. For now, the UAE’s decision to stay the course post-FTX looks like a savvy move, but it’s also becoming more exposed to this volatile industry and it would be foolish not to expect more turbulence.
Samuel Wendel is a senior market research analyst with Al-Monitor covering economic, tech and business trends across the Middle East. He has previously served as a journalist with Forbes Middle East and Wamda, where he reported on key industry developments spanning a range of sectors in the region.
We're glad you're interested in this memo.
Memos are one of several features available only to PRO Expert members. Become a member to read the full memos and get access to all exclusive PRO content.
Already a Member? Sign in
The Middle East's Best Newsletters
Join over 50,000 readers who access our journalists dedicated newsletters, covering the top political, security, business and tech issues across the region each week.
Delivered straight to your inbox.
Free
What's included:
Free newsletters available:
- The Takeaway & Week in Review
- Middle East Minute (AM)
- Daily Briefing (PM)
- Business & Tech Briefing
- Security Briefing
- Gulf Briefing
- Israel Briefing
- Palestine Briefing
- Turkey Briefing
- Iraq Briefing
Premium Membership
Join the Middle East's most notable experts for premium memos, trend reports, live video Q&A, and intimate in-person events, each detailing exclusive insights on business and geopolitical trends shaping the region.
$25.00 / month
billed annually
$31.00 / month
billed monthly
What's included:
Memos - premium analytical writing: actionable insights on markets and geopolitics.
Live Video Q&A - Hear from our top journalists and regional experts.
Special Events - Intimate in-person events with business & political VIPs.
Trend Reports - Deep dive analysis on market updates.
We also offer team plans. Please send an email to pro.support@al-monitor.com and we'll onboard your team.
Already a Member? Sign in
Expert
