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UAE ‘future-ready’ for cryptos

Dubai - The nation is poised to be a global hub for cryptocurrency as market capitalisation hits $1.4 trillion up 86 per cent year to date.

Digital currency has disrupted the way money is perceived by the masses, and future of money is a click on your mobile, giving you the option to make payments for buying or selling goods digitally and in multiple currencies. Worldwide, nations are currently grappling with their national currency, proposed central bank digital currency, and cryptocurrency. Are you future-ready? if not, it’s time you get to the basics.

What is cryptocurrency?

A cryptocurrency, or crypto, is a digital currency that can be used to buy goods and services but uses an online ledger. The most prominent cryptocurrency worldwide is Bitcoin (BTC) which has a market capitalisation of over $821 billion; Ethereum (ETH) at $353 billion and Tether (USDT) at $68 billion.

Bitcoin hit $61,795.40 for the first time in six months on Friday, as hopes grew that US regulators would allow a futures-based Exchange-Traded Fund (ETF), a move likely to open the path to wider investment in digital assets.

Cryptocurrency investors have been awaiting approval for the first US ETF for bitcoin, with bets on such a move fuelling its recent rally. The world’s biggest cryptocurrency rose 4.5 per cent to its highest level since April 17 and was last at $59,290. It has risen by more than half since September 20 and closing in on its record high of $64,895 hit in April 2021.

The US Securities and Exchange Commission (SEC) is set to allow the first US bitcoin futures ETF to begin trading next week, Bloomberg News reported on Thursday.

UAE government backs

The popularity of cryptocurrency has hit the Mena region too as digital assets have gained momentum in Dubai with the government permitting the free zones to conduct crypto-related business activities in the UAE. The nation is poised to be a global hub for cryptocurrency as market capitalisation hits $1.4 trillion up 86 per cent year to date.

Recently, MidChains, the virtual asset trading platform based in Abu Dhabi and part of Hub71’s cohort, also completed its first trades across all its listed assets as a fully regulated and supervised trading platform acting under the Financial Services Regulatory Authority’s (FSRA) regulatory framework of Abu Dhabi Global Market (ADGM).

MidChains has confirmed trades across Bitcoin, Ethereum, Litecoin and Bitcoin Cash and is the first regulated platform in the UAE to have conducted trades across all these virtual assets on September 1. MidChains’ current listed crypto assets for trading make up more than 65 per cent of the global market cap of the cryptocurrency market. MidChains is backed by notable regional and international investors, including Mubadala Investment Company (Mubadala), Miami International Holdings, and DisruptAD, ADQ’s venture platform. MidChains is the first and only fully-regulated virtual asset trading platform to receive sovereign wealth fund backing in the region.

“The year 2021 has brought great news for crypto start-ups looking to set up in the UAE. The Securities and Commodities Authority (SCA) has signed agreements with some of the country’s flagship free zones — DMCC, DAFZA, and DWTCA — making it easier for crypto-related businesses to get a license, set up, and operate in the UAE. This is clearly a vote of confidence in the growing crypto ecosystem in the country, and the region. Besides allowing for more efficient supervision of the crypto market, 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 sees regional transaction volumes on its platform exceed $ 3 billion in H1 2021

“With a supportive regulatory framework in the works, the emergence of cryptocurrencies as a new asset class recording extraordinary returns, and a high concentration of High-net-worth individual (HNWI) in the UAE specifically, there’s a growing acceptance of crypto assets as a way to diversify and grow portfolios. We see a lot of potential for crypto adoption within the Mena region. The right regulation coupled with investor awareness initiatives is going to drive mass adoption of crypto assets in the region.”

The UAE is poised to be a global hub for this unique and emerging asset class. Regional pioneers Coinbase, BitOasis, and Matrix have seen the sector grow rapidly.

“This emerging sector is growing in breadth and depth during a period of pandemic-driven turbulence and unprecedented economic policy interventions. Prices declined nearly 50 per cent between April and July, yet more than $ 2 billion of investment was allocated to the sector in August. Underneath all of that, technical and financial innovation is flourishing. The world is realising what many of us have known for a while: virtual assets are here to stay,” said Terry Culver, CEO Matrix.

The recently concluded 11th edition of the AIM Summit at the Dubai International Financial Centre (DIFC) had representatives from Tezos, Invictus Capital, RChain, Hut 8, and CasperLabs.

Talal Tabbaa, co-founder, and chief executive officer of Jibrel Network said: “It’s inevitable that crypto goes mainstream, as the global adoption rate is around two per cent and it’s logical that we see that increase in the coming years. Bahrain and the UAE already took solid steps to expedite crypto’s growth in the region. It’s great seeing a push from SCA and definitely a step in the right direction but I believe that comprehensive crypto regulations that cover the banking sector are critical. Entry and exit in and out of crypto are still reliant on the banks, so it’s important to address the elephant in the room.”

Crypto has gained significant popularity in the Middle East within a very short space of time. New Crypto technologies such as Defi and NFTs begin to provide real-world positive utility to their users. With more regulatory clarity being achieved in this space and the UAE and Bahrain establishing the regulatory framework for cryptocurrency-related business, the adoption of digital assets will continue to increase.

“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 move by the authorities in the promotion and support of the growing crypto space within the UAE,” said Arshad Khan, chief executive officer of Arabian Bourse.

“Dubai and Abu Dhabi have established a global reputation as being innovative cities, this move will allow for an explosion of growth and new ideas within the crypto space. This move will fast-track the synergies and innovations that are already occurring within the crypto space out of UAE and indeed attract new highly talented people to the city. This will result in additional job creation and investment too.”

Meanwhile, CED2021, one of the premier cryptocurrency exhibition and conference, concluded on Friday, with more than 8,000 people attending the hybrid event. The event witnessed participation from more than 80 crypto industry speakers and 64 crypto companies. Top crypto companies like Currency.com, Zebpay, B2broker, Regal RA, Smartkey, Koda Finance, Bybit, Localtrade, CoinSwap joined the event and exhibited their offering to the traders and investors.

Bitcoin mining explores sustainable energy

The most powerful feature of bitcoin is that it allows individuals to securely transfer value to one another without a centralised intermediary verifying the transaction, like a bank.

The transaction is instead verified by a process called mining. Bitcoin mining ensures that the bitcoin network is secure, and allows transfers to take place Peer-to-Peer (P2P) — a decentralised platform whereby two individuals interact directly with each other — over the internet in about 10 minutes, said Zachary Cefaratti, chief executive officer, Dalma Capital Management.

Miners are compensated for verifying transactions with transaction fees and receive an additional reward for securing the network with newly minted bitcoin. All new bitcoin entering into circulation is created by mining, and there will only ever be 21 million bitcoin of which nearly 90 per cent are already mined. Every four years, the amount of new bitcoins entering the market decreases by half and the last bitcoin will be mined around 2140.

Cefaratti said: “Right now, bitcoin mining is an extremely profitable industry, with the most efficient mining operations realising 90 per cent EBITDA margins in the short term.”

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

The high profitability of bitcoin mining has led to increasing capital markets activity but has also attracted scrutiny with a push for the industry to move to more sustainable energy sources. Bitcoin mining is already a leading industry in terms of sustainability, with about 70 per cent of bitcoin mining taking places with sustainable energy versus about 16 per cent in the broader economy.

— sandhya@khaleejtimes.com