Dubai: Will the Middle East’s new crypto oasis go global?

Will Dubai, the Middle East’s new crypto oasis, go global, essays Liam Gibson for Wealth of Geeks.

Dubai has big ambitions to become a regional and global destination for cryptocurrency. It is well-positioned as the most populous of the United Arab Emirates’ seven emirates and the region’s undisputed travel and trade hub.

Located at the crossroads of Europe, Africa, and Asia, it is an ideal location for a crypto-friendly oasis in a world where harsh restrictions on decentralized finance remain the norm.

Yet Dubai has some competition as other budding oases emerge across the region. It is also courting controversy with a lax approach to Russian sanctions and other issues. As a result, Dubai’s trajectory will not only impact crypto but global finance and geopolitics too.

From Singapore to Dubai

In December, the Emirate accelerated its crypto drive. It announced plans to transform its Dubai World Trade Centre into a regulatory zone for virtual assets and cryptocurrencies. Its minister for entrepreneurship also revealed the UAE was in talks with several large crypto firms looking to relocate from East Asia to Dubai.

Dubai soon landed a crypto whale from Singapore. Binance, the world’s largest exchange, signed a Memorandum of Understanding (MoU) with Dubai to help build its goal of becoming a crypto hub.

Appearing in traditional Emirati robes on Twitter on December 21, Binance founder Changpeng Zhao praised Dubai as “very pro-crypto.” The move came just a week after the company withdrew its crypto license application in Singapore and confirmed it would shut down its exchange there by February.

The momentum from the move has carried through as other international exchanges jumped on the bandwagon. Late last month, Bybit and Crypto.com announced plans to set up shop in Dubai soon after the UAE had finalized operating licenses to Binance and FTX Europe.

Crypto.com will embark on a ” substantial recruitment drive,” while Binance already seeks over 100 new hires. This could trigger a further inflow of highly sought-after technical talent to Dubai as crypto professionals seek new opportunities.

If those crypto workers bring families, they may pay their kids’ tuition in crypto too. Dubai-based “Citizens School,” a UK curriculum institution, announced it would soon allow parents to pay tuition in Bitcoin and Ether, which could signify broader adoption of virtual assets in the city.

Homegrown exchanges are also springing up. For example, UAE authorities recently granted a provisional license to BitOasis, an Arabic/English bilingual platform that focuses on customers in the Middle East. It is now completing the process to obtain a full permit.

Stiff Competition

Yet Dubai isn’t the only aspiring crypto oasis in the region. Israel and Bahrain are close contenders who each have distinct advantages.

Unlike the UAE, Bahrain’s central bank recognizes cryptocurrencies as an official payment method. This enables investors to withdraw or deposit crypto at banks there.

Despite Binance’s move to Dubai, it is also setting up an exchange in Bahrain. Bahrain was ahead of the curve in the Gulf, setting up a legal structure for crypto exchanges back in 2019.

“That’s the biggest obstacle (for Dubai),” Talal Tabbaa, a Dubai resident and CEO of Bahrain-based exchange CoinMENA, told CNN. “If banking was sorted, then Dubai could be the number one destination for crypto.”

Israel also holds promise and saw big strides in March. Last month Tel-Aviv-based Bank Leumi became the first in the country to let customers trade crypto. At the same time, Coinmama, a local exchange that allows its 3.5 million users to buy coins with credit cards, was acquired by a Canadian company for $3 million.

The ‘startup nation’ is likely to keep the momentum going. The Israel Crypto Community is staging the country’s largest crypto conference in May, which will gather industry players from Celsius Networks, eToro, Horizon Labs, iAngels, and BeinCrypto to discuss the industry’s development.

Israel is doing much better than the UAE at gender parity in crypto ownership. Women represent 51% of all Israeli crypto holders, as opposed to 32% in the UAE, per a new research report by Gemini. Yet, overall it has a slightly lower adoption rate across the whole population. While 28% of Israelis own the digital asset, 35% of Emiratis do.

The UAE may lengthen its lead on this metric too. Gemini found that 32% of non-owners in the Gulf state are likely to make their first crypto purchase this year.

Causes for Concern

Despite Dubai’s potential to become a global crypto hub, some trends may concern international investors.

Crypto operators there are being inundated with requests from Russian elites to liquidate billions worth of virtual assets. Many who cash out their crypto through Emirati exchanges then buy up real estate right in Dubai.

The New York Times estimates at least 38 Russian oligarchs with ties to Putin own villas in Dubai with a combined value of over $314 million. That number could skyrocket as incoming Russian investment in real estate has soared tenfold since the war in Ukraine.

Despite being a US ally, the UAE has expressed tacit support for the Kremlin in recent weeks.

It abstained from voting on a UN vote to convene an emergency session of the UN General Assembly immediately following Russia’s invasion of Ukraine. The Emirati crown prince even called Putin on March 1 and reportedly sympathized with Russian national security interests.

Staff at The National, the Emirati’s leading English-language newspaper, were also instructed not to use “invasion” to describe Russian military aggression in Ukraine.

Given this context, the UAE has few qualms about letting oligarchs from Russia (or elsewhere) funnel ill-gotten gains through the country, and crypto is making it easier.

After the Financial Action Task Force (FATF) placed the country on a “grey list” in March, the UAE will also be under increased international monitoring. Real estate agents and precious metals dealers are two groups the financial crime and anti-money laundering watchdog will follow closely.

The UAE’s Foreign Ministry did not comment on the news other than to repeat its “strong commitment” to working with FATF on anti-money laundering and counter-terrorism financing.

If investors remain dubious that Dubai will tackle these problems, its reputation could suffer. As the financial hub moves deeper into decentralized finance, its values and business culture will become critical to developing the global crypto ecosystem.