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A case for highlighting the role of crypto in the Middle East at Davos

Cryptocurrencies is bringing financial inclusion to the region where a sizable chunk of people doesn’t have access to banking services, and needs to be discussed at the WEF

A case for highlighting the role of crypto in the Middle East at Davos
[Source photo: Venkat Reddy/Fast Company Middle East]

Today, El Salvador’s president Nayib Bukele, a Bitcoin supporter, is hosting a crypto conference at the ongoing annual World Economic Forum in Davos. Central bank representatives from 44 nations, including Egypt and Jordan, are attending the event.

It is significant for such a big group of countries to gather to discuss cryptocurrency, especially when the WEF highlighted the role of electronic payments in bringing financial inclusion. 

Crypto is growing fast. In the past couple of years, there’s been a strong focus on cryptocurrency in the Middle East, and it’s placed well to capitalise on the sector’s massive growth. The total transaction volumes grew over 500% to $15.8 trillion in 2021, according to Chainalysis. In the UAE, there is a dedicated supervisory body. After creating a new regulatory body, Dubai’s Virtual Assets Regulation Authority, the emirate, announced a regulatory framework for virtual assets, including cryptocurrencies. Big crypto exchanges like FTX are setting up shop in Dubai. Binance expanded into UAE and Bahrain, recruiting for over 100 positions in the Gulf. Dubai is also eyeing the status of a regional crypto oasis, with 1000 crypto firms operating from Dubai in 2022. Among the first to issue crypto regulations in 2019, Bahrain has granted licenses to Binance, Rain, and crypto exchanges’ innovative services. 

In such a scenario, the region, especially the UAE, can bet hard on global business interest in cryptocurrencies at Davos to win the cryptocurrency crown.

In the summer of 2021, a cryptocurrency called DubaiCoin, touted as the city’s digital cash, jumped 1000% in value in just 24 hours. The media frenzy it sparked off died down with the revelation that it was a dubious currency floated to phish investor data.

This may not be a positive crypto story, but it highlights cryptocurrencies’ appeal to the aspirations of Middle Eastern investors. DubaiCoin’s instant popularity shows how regulations and transparency are the only tools to deal with the crypto surge.

While a global YouGov survey found that trust in cryptocurrencies was highest among adults in the UAE, countries like Qatar, Iraq, and Kuwait have been apprehensive about blockchain-based cash. But the writing is on the wall: cryptocurrency is here to stay and open doors to financial inclusion. Roughly 50% of people in the Middle East didn’t have a bank account as of 2017, but 70% now have access to the internet.

The above statistics explain the popularity of fintech apps in the region, with more than 130 startups offering digital financial services. Seamless cross-border transactions, and protection from counterfeiting due to the blockchain, make cryptocurrencies attractive investment vehicles. Financial inclusion has been discussed at the WEF, and cryptocurrencies can be an effective tool in the Middle East. Moreover, women in the region can also enjoy more financial freedom with decentralized cryptocurrencies in an online ecosystem, which is crucial since women constitute 56% of all unbanked adults.

“People are waking up to the transformative opportunity of crypto, how it improves access to financial services. The theme of this year’s WEF’s annual meeting is aptly titled ‘History at a Turning Point: Government Policies and Business Strategies.’ We truly believe crypto adoption is at an inflection point, especially within the Middle East,” says Benjamin Ampen, Kraken’s MENA Managing Director.

Has the crypto transformed lives in the region with large unbanked populations?

In a highly connected ecosystem, a crypto-friendly approach of the UAE government has encouraged a third of the country’s residents to invest in cryptocurrencies. Crypto and digital currencies were among the top trends for 2022 in the gulf region. “At the current pace of adoption, crypto has a promising opportunity to disrupt the financial ecosystem in the Middle East for the better. We anticipate more retail and institutional investors will recognize and value that crypto assets bring to society. At this point, blockchain technology will naturally integrate itself into the economy,” adds Ampen.

Beyond crypto transactions without a processing fee, firms such as CoinMENA offer cash backs on deposits to crypto wallets in Bahrain. The free-flowing virtual currency also offers financial inclusion in many parts of the Arab world.

For instance, in Lebanon, young people are moving their money out of banks that are collapsing amid a financial crisis. Pushing their savings into secure cryptocurrencies seems like a more stable option. As for refugees, they use crypto for receiving salaries and sending money abroad without restrictions from the Lebanese central bank. 

Like Lebanon, Palestine also has many people working remotely due to blockades. The inability to receive and send payments in Gaza prompted professionals to use cryptocurrencies. Although the Palestinian Monetary Authority had banned crypto transactions in the West Bank, it has considered launching its digital currency. This is similar to the UAE central bank’s plans to introduce its first digital coin in five years.

Meanwhile, in the UAE, grocery delivery service YallaMarket and property firms are accepting payments in crypto. And its national airline, Emirates, plans to accept payment in Bitcoin.

But the UAE also has its challenges, says Ampen. “The current situation of needing to exchange dirhams to US dollars to buy crypto assets — such as bitcoin and ether – is holding back the economic benefits crypto can bring.” 

Bahrain’s crypto adoption journey in the Middle East started with Rain, founded in 2017, followed by CoinMENA, which was launched in 2021, and complies with sharia to address regional sensibilities. But the UAE seems to be taking it forward with Dubai and Abu Dhabi giving licenses to 30 new exchanges in the first half of 2022 alone.

Like its regional peers in Bahrain, Dubai’s homegrown crypto provider Bitoasis has also expanded into gulf countries such as Kuwait, Oman, and Saudi Arabia. With 20 cryptocurrencies, it offers more options to investors and facilitates crypto-to-crypto transactions.

This year, Kraken, which obtained licenses for operating in the UAE, credits financial regulator Abu Dhabi Global Market for modernizing legislation to make the most of digital assets. 

On the other hand, in countries like Lebanon, it’s almost impossible to buy cryptocurrencies from global exchanges using cards due to sanctions and regulatory restrictions. In this scenario, local traders dealing in Tether offer cryptocurrency in exchange for cash.

All these factors make a strong case for highlighting the need to recognize cryptocurrencies as a vehicle for change in the Middle East on the global stage in Davos. It’ll also encourage authorities to create airtight regulatory frameworks, where verification processes and transparency can protect citizens. Acknowledgment of crypto’s role in creating a level playing field for financial inclusion in the Middle East will prompt central banks apprehensive of the virtual currency to consider regulations as an alternative to restrictions.

ABOUT THE AUTHOR

Aiyub Dawood is a Senior Correspondent at Fast Company Middle East, who looks for practical application of technology. He explores the use of AI, innovation and data to solve everyday problems. More

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