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The Middle East is on its way to becoming a leading destination for blockchain businesses and investments. This is due in part to the progressive nature and receptivity of new technologies, but also because most countries in the Middle East are on a mission to build competitive and future-proof post-oil economies.
Last year, saw region-wide interest in the key elements making up this new and innovative financial sector. This year also promises to be positive for the industry.
In 2018, bitcoin, the most valuable crypto-asset, saw its value drop more than 80%, causing a bear market that lost nearly $700 billion of total market capitalization. Despite the intrigue this has caused, it’s important to highlight that from stocks to gold, bubbles are a reality in all financial markets. The crypto-asset market has gone through several price bubbles in the past and has always emerged stronger, with a larger user base, a higher number of entrepreneurs and increased support from regulators worldwide.
While headlines of a crash were bombarding international news platforms in 2018, headlines reported a different story in the Middle East; one of regulatory maturity and increased support for the regional crypto-asset market.
Despite the short-term volatility and scalability challenges, public blockchains have the potential to fundamentally transform the traditional financial sector and crypto-assets to become one of the widest adopted asset classes globally. The growth of the market, particularly in the Middle East, will be fuelled by the crypto asset regulatory frameworks that emerged in Abu Dhabi and Bahrain in 2018.
Sound and balanced regulation is crucial for the continued growth and integration of the crypto-asset space and technology into mainstream regulated industries. Regulations provide safety and assurance to customers, leading to sustainable growth and adoption. Policy makers, internationally and regionally, need to build regulatory frameworks that reduce risk without stifling innovation.
Last year saw regulators moving more aggressively both globally and regionally. Locally, the Abu Dhabi Global Market (ADGM), launched its framework to regulate crypto-asset activities and the UAE’s Securities and Commodities Authority (SCA) approved a plan to regulate ICOs and recognise them as securities. The Central Bank of Bahrain (CBB) also recently issued draft rules to regulate crypto-asset platforms and is expected to release its final licensing framework in Q1 2019.
Greater regulatory maturity gives more assurance to funds, family offices and other institutional clients, to start deploying capital into the market and contribute to its growth.
Global players such as Fidelity Investments and Goldman Sachs have been rolling out institutional support for crypto-assets—Goldman Sachs is the first investment bank to offer a bitcoin trading product to its customers. At the same time, the U.S. Securities and Exchange Commission (SEC) has announced that while at least 10 bitcoin exchange-traded fund (ETF) proposals have been rejected to date, the first SEC approved bitcoin ETF is inevitable.
Global financial behemoths have significant capital to invest, and the means to provide critical infrastructure for crypto-asset investments. Because of their ability to fuel further the adoption of this technology, they will propel the development of regulation, contributing to the legitimization of the market and increasing confidence for other investors. This will be no different in the Middle East, as we see more wealth management funds, private banks, family offices and various institutional investors looking to be part of this space as regulation matures.
There is no doubt that 2018 may have caused some scepticism by some investors about the future of this technology. However, challenges create opportunities and there is a huge opportunity for the development of a solid crypto-asset ecosystem in the UAE and across the Middle East. Government, regulators, and banks have a major role to play – how they act in 2019 will determine the industry’s success.
Ola Doudin is the co-founder & CEO at BitOasis.