In December 2024, bitcoin more than doubled, driven by optimism over easing regulatory hurdles and Donald Trump’s return to the White House and promise to make the US the “crypto capital of the planet.” 

A more than 120% surge in Bitcoin in 2024 has propelled the sector’s market value to roughly $3.5 trillion. Much of the optimism began in January when the US Securities and Exchange Commission approved the first ETFs to track the spot price of bitcoin.

According to analysts, more gains are in store this year. 

Cryptocurrencies, including Bitcoin, Ethereum, Dogecoin, and others, have a faithful following among Middle Eastern investors.

The region, which is becoming a global contender in the cryptocurrency industry, securing the seventh-largest spot in the market by 2024, accounting for 7.5 % of the world’s total transaction volume, traditional financial institutions are exploring their roles within the crypto ecosystem.

While centralized exchanges remain dominant, decentralized finance (DeFi) is gaining traction, especially in the UAE and Saudi Arabia. With increasing regulatory clarity, many expect crypto to become a permanent part of institutional multi-asset allocation.

RISE IN CRYPTO HEISTS?

Amid this ignited bullish sentiment among supporters of the once-nascent asset class, there is a fear of a rise in crypto heists in the region.

As the digital asset market booms, the illicit use of crypto will grow in tandem, analysts say.

A recent Chainalysis report says that globally, funds stolen by hacking cryptocurrency platforms surged 21% from a year ago to $2.2 billion in 2024. The hacking amount exceeded $1 billion for the fourth straight year, and the number of incidents rose to 303 from 282 in 2023. Hackers had stolen $1.8 billion in 2023.

“Looking at trends in crypto crime over the last five years, there has been a steady rise in the value of funds received by illicit addresses, a phenomenon which aligns with broader adoption trends,” says Arushi Goel, Policy Lead – Middle East and Africa at Chainalysis.

But what’s been interesting, Goel says, is that as its use cases grow, crypto crime has become more diverse and professionalized.

“It’s important to keep in mind that a larger market cap for crypto assets means a larger attack surface area,” adds Goel. 

Countering the proliferation of these crimes — especially fraud and money laundering — will undoubtedly be a key challenge for the industry in the region.

Crypto companies’ top priority is to enhance security and protect user assets, says Nathan Swain, Chief Information Security Officer at Binance. “Most crypto companies are already heavily focused on developing technological innovations to enhance user safety. However, additional  frameworks targeting crime may be challenging to implement effectively, as the primary threats often stem from user vulnerabilities and human error rather than flaws in company technology.”

DIVERSIFICATION OF CRYPTO CRIME

According to experts, crypto crime is diversifying globally. An increasing number of illicit actors, including transnational organized crime groups, are exploiting cryptocurrency to conduct a range of traditional criminal activities, such as frauds and scams, money laundering, and violent crime. 

“Some criminal networks are turning to cryptocurrency to enable ‘polycrime’—engaging in multiple forms of criminal activity,” says Goel. “This raises all sorts of concerns for public and private sector organizations and highlights the need for greater collaboration, not just between stakeholders in the crypto community, but the broader financial ecosystem.”

Swain says that as crypto crimes become increasingly sophisticated, incorporating AI to impersonate crypto professionals makes their schemes more deceptive. The best defense is a healthy dose of skepticism.

“Just because something appears legitimate doesn’t mean it’s trustworthy. Users should remain vigilant against unsolicited messages, phishing links, and offers that seem too good to be true. Most importantly, never share your private account information, including private keys or passcodes.” 

MORE REGULATIONS IN THE OFFING?

Regulators have long warned about crypto’s role in crime. The Financial Action Task Force, the global body responsible for tackling money laundering and terrorist financing, has previously warned that crypto assets “risk becoming a safe haven for the financial transactions of criminals and terrorists.”

In 2022, a series of bankruptcies at top crypto firms exposed widespread fraud and misconduct, leaving millions of investors with heavy losses. 

But with cryptocurrency prices hitting new highs in recent months, will there be more regulations in the region to protect digital asset markets and their participants?

Marking a watershed moment for the broader crypto industry, the UAE already has an impressive regulatory regime for crypto that requires companies to develop robust systems for monitoring and reporting suspicious transactions. For example, VARA, responsible for regulating, supervising, and overseeing virtual asset activities within the emirate, has clear guidelines for the industry, from market conduct to information management procedures and anti-money laundering laws. 

“This is a space that’s rapidly evolving as the country continues to pioneer forward-focused regulation,” says Goel. “Just last year, the Central Bank of the UAE released its Payment Token Services Regulation, which clarifies the rules for issuing, holding, and converting payment tokens in the country.”

Goel adds, “We can expect the introduction of more measures to safeguard consumers and thus create an environment where companies can safely innovate and advance the sector.” 

Additional policies and regulatory frameworks to protect users and establish standards for crypto companies could be a positive step forward; however, Swain adds, they may be challenging to implement effectively, as the primary threats often stem from user vulnerabilities and human error rather than flaws in company technology. 

“While these regulations may pressure companies, they may not fully address crimes occurring  through personal interactions, where a significant portion of crypto-related  incidents arise.”

While it might make sense to emphasize more regulations in the region, as cybercriminals have been switching to more under-the-radar cryptocurrencies, Goel says that while the overall amount related to crime is increasing, when considered as a share of the overall crypto market, this consistently hovers under the 1% mark, highlighting that legitimate uses of crypto significantly outweigh the actions of bad actors.