UAE ‘Future-Ready’ for Cryptos

By Sakshi Srivastava - 17 Nov 2021 Last Updated: 01 Dec 2021
UAE ‘Future-Ready’ for Cryptos

Digital currency has changed the way people perceive money, and the fate of money is a click on your mobile device, allowing you to make payments for buying or selling goods digitally and in multiple currencies. Nations around the world are currently debating their national currency, proposed central bank digital currency, and crypto currency. Are you future-ready? If not, it's time to head back to basics.

What essentially is Cryptocurrency?

A cryptocurrency, also known as a crypto, is a digital currency that can be used to purchase goods and services but operates on an online ledger. The most prominent cryptocurrency in the world is Bitcoin (BTC), which has a market capitalisation of over $821 billion, Ethereum (ETH) has a market capitalisation of $353 billion; and Tether (USDT) has a market capitalisation of $68 billion.

Bitcoin reached $61,795.40 for the first time in six months, as hopes grew that US regulators would allow a futures-based Exchange-Traded Fund (ETF), laying the groundwork for greater investment in digital assets.

Cryptocurrency investors have been waiting for the first US ETF for bitcoin to be approved, with bets on such a move fueling the cryptocurrency's recent rally. The world's largest cryptocurrency gained 4.5% to its highest level since April 17 and was last trading at $59,290. It has increased by more than half since September 20 and is approaching its all-time high of $64,895 set in April 2021.

According to Bloomberg News, the US Securities and Exchange Commission (SEC) will allow the first US bitcoin futures ETF to begin trading next week.

UAE Government steps related to Cryptos

Cryptocurrency popularity has spread to the Mena region, as digital assets have gained ground in Dubai, with the government allowing free zones to conduct crypto-related business activities in the UAE. The country is on track to become a global cryptocurrency hub, with market capitalisation reaching $1.4 trillion, an increase of 86% year on year.

MidChains, an Abu Dhabi-based virtual asset trading platform and member of Hub71's cohort, recently completed its first trades across all of its listed assets as a fully regulated and supervised trading platform operating under the Financial Services Regulatory Authority's (FSRA) regulatory framework of the Abu Dhabi Global Market (ADGM).

MidChains acknowledged trades in Bitcoin, Ethereum, Litecoin, and Bitcoin Cash on September 1 and became the first regulated platform in the UAE to conduct trades in all of these virtual assets. MidChains' current listed crypto assets for trading account for more than 65% of the cryptocurrency market's global market cap. Mubadala Investment Company (Mubadala), Miami International Holdings, and Disrupt AD, ADQ's venture platform, are among the notable regional and international investors in MidChains. MidChains is the region's first and only fully-regulated virtual asset trading platform to be supported by a sovereign wealth fund.

Growth of Cryptos in UAE

The UAE is well-positioned to become a global hub for this novel and emerging asset class. Regional pioneers Coinbase, BitOasis, and Matrix have witnessed rapid growth in the sector.

The year 2021 has brought exciting news for crypto start-ups looking to establish themselves in the UAE. The Securities and Commodities Authority (SCA) has signed agreements with some of the UAE's most prominent free zones, including DMCC, DAFZA, and DWTCA, to make it easier for crypto-related businesses to obtain a licence and operate in the UAE. This is clearly a vote of confidence in the country's and region's growing crypto ecosystem. This move by the SCA will help enhance Dubai's reputation as a future-ready centre that is well-positioned to benefit from rising crypto adoption in the coming years," said Srinu Chowhan, vice-president marketing and growth, BitOasis, which expects regional transaction volumes on its platform to exceed $ 3 billion in H1 2021.

In a very short period of time, cryptocurrency has grown in popularity in the Middle East. New Crypto technologies, such as Defi and NFTs, are beginning to provide real-world benefits to their users. With more regulatory clarity in this space and the UAE and Bahrain establishing regulatory frameworks for cryptocurrency-related business, digital asset adoption will continue to rise.

The UAE has become a popular destination for crypto and blockchain investors and entrepreneurs, and the recent move by the SCA to allow crypto assets trading within Dubai World Trade Centre (DWTC) is another positive step by the authorities in promoting and supporting the growing crypto space within the UAE," said Arshad Khan, CEO of Arabian Bourse.

Bitcoin Mining Investigates Renewable Energy Sources

The most powerful feature of bitcoin is that it allows individuals to securely transfer value to one another without the need for a centralised intermediary to verify the transaction, such as a bank.

Instead, a process known as mining is used to validate the transaction. Bitcoin mining ensures the security of the bitcoin network and allows for transactions to take place. Peer-to-Peer (P2P) — a decentralised platform in which two individuals interact directly with each other — over the internet in about 10 minutes, according to Zachary Cefaratti, CEO of Dalma Capital Management.

Miners are compensated with transaction fees for verifying transactions and receive an additional reward for securing the network with newly minted bitcoin. Mining generates all new bitcoins that enter circulation, and there will only ever be 21 million bitcoin, nearly 90% of which have already been mined. Every four years, the number of new bitcoins entering the market is cut in half, with the last bitcoin mined around 2140.

The bitcoin mining industry's extraordinary profits are being driven by a combination of the rising bitcoin price, a global chip shortage, a recent Chinese mining ban, and long lead times in developing suitable electrification infrastructure in this energy-intensive business.

"Right now, bitcoin mining is an extremely profitable industry," Cefaratti said, "with the most efficient mining operations realising 90% EBITDA margins in the short term."

The high profitability of bitcoin mining has increased capital market activity, but it has also drawn scrutiny, with a push for the industry to transition to more sustainable energy sources. Bitcoin mining is already a leading industry in terms of sustainability, with approximately 70% of bitcoin mining using sustainable energy versus approximately 16% in the broader economy.

"It's inevitable that crypto goes mainstream," said Talal Tabbaa, co-founder and chief government officer of Jibrel Network. "The global adoption rate is around 2%, and it's logical that we see that increase in the coming years." Bahrain and the UAE have already taken significant steps to accelerate the growth of cryptocurrency in the region. It's encouraging to see a push from SCA, and it's a step in the right direction, but I believe that comprehensive crypto regulations that cover the banking sector are essential. "Because entry and exit into and out of crypto are still reliant on banks, it's critical to address the elephant in the room."

Conclusion

As crypto matures, we will achieve a high level of stability, allowing it to be easily transferred and used as a store of value by businesses, the government, and everyone as a part of everyday life. The United Arab Emirates is frequently regarded as a digital innovation hotspot. In contrast to the types of harsh regulatory action taken by other affluent countries in the region, the UAE has taken a mostly relaxed, if somewhat ambiguous, stance on cryptocurrency. Financial authorities in Dubai and Abu Dhabi have been motivated in recent years to develop regulations that could strengthen the UAE's position in the crypto scene.

By Sakshi Srivastava

17-Nov, 2021

Cryptocurrency Related FAQ

Frequently Asked Questions

  • What do you mean by Blockchain?

    Blockchains are meant to use cryptocurrencies as "ink" for recording transactions on the network. Cryptocurrencies are so distinct from blockchain, yet remain an essential component of the technology.

  • Is it possible to exchange Cryptocurrency for Cash?

    This is one of the simplest methods for converting Cryptocurrency to cash. For example Bitcoin users can sell the digital currency and withdraw money directly from an account using platforms like coinbase and kraken.

  • What concerns the government about the use of Cryptocurrencies?

    The government is concerned about two things. Firstly the use of cryptocurrencies for illegal purposes like as tax evasion, money laundering, and terrorism financing and secondly the loss of control over monetary policy and capital flight abroad.

  • Why do Cryptocurrency prices fluctuate?

    The crypto market functions similarly to the stock market. The latter has its ups and downs as well. The crypto market, on the other hand, is new and more volatile. As a result, it reacts more quickly to changes, resulting in increased fluctuation.

  • Is Cryptocurrency a legitimate mode of money?

    Cryptocurrency is a type of digital money that is based on software. Based on the current market value, your token represents a certain quantity of cryptocurrency you hold. You can either sell or cash out that token at market value.

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