Konstantin Tserazov: «Gulf Countries’ Crypto and Blockchain Ascendancy: A Showdown with the West»

The dubious regulatory landscape for cryptocurrencies and blockchain in the USA has pushed global crypto firms to move to locations such as Gulf countries. In 2023, the volume of cryptocurrencies transacted in these countries rose by almost 50% on a yearly basis.

At the forefront of this shift are the United Arab Emirates (UAE) and Saudi Arabia, both drawing crypto enterprises with their substantial populations and corresponding spending power. In terms of becoming a blockchain/crypto hub, whether it's due to regulatory steps to explore these innovations or because of more disposable income and openness to new developments in the financial realm, these factors seem to be attracting international businesses to relocate there. The UAE and Saudi Arabia are developed markets, and in this sense, they operate on the same playing field as Western countries.

UAE

In 2020, the Securities and Commodities Authority (SCA) released Act No. 23 on the Crypto Assets Activities Regulation (CAAR). This regulatory move embraces all aspects of crypto assets regulation within the UAE, including issuance, listing, and trading.

Accordingly, Dubai, in compliance with Act No. 23 of the SCA, approved its own digital assets law, appointing the Virtual Assets Regulatory Authority (VARA) as the agency in charge of the sector. Some leading global crypto exchanges with operations in Dubai were granted a Virtual Asset Service Provider (VASP) license by VARA to trade cryptocurrencies.

However, this regulation does not apply to the Dubai International Financial Centre (DIFC), as the free zone has its own financial services watchdog, the Dubai Financial Services Authority (DFSA).

On March 8, 2024, the DIFC released what the regulator earmarked as the "world's first" digital assets legal document. It defines that the legal specifics of digital assets derive from the understanding of them as a property object. The document also establishes the rules for the transferring and dealing with digital assets. A number of already valid regulations will be updated via the implementation of the DIFC Amendment Law.

A cryptocurrency license and registration with the DFSA are requirements for all crypto investors in the UAE. With the application of this permission, people in Dubai are able to sell and buy cryptocurrencies in accordance with the law. All crypto trades are registered with the DFSA as an investment. The appropriate declaration of crypto activities implies that the investor must maintain all relevant records. The gains on crypto investments are taxed, even if Dubai grants exemptions from taxes for some business activities.

At last, another sign of rapid movement of UAE into the digital assets sphere was flashed by the Central Bank of UAE (CBUAE). On March 23, the regulator released its strategy “The Digital dirham” as one of the nine initiatives of the CBUAE’s programme to overhaul financial infrastructure. In the case of digital dirham CBUAE struck a deal with G42 Cloud and R3 companies.

Saudi Arabia

Currently, Saudi Arabia does not yet have a comprehensive regulatory framework for cryptocurrencies. The Saudi Arabian Monetary Authority (SAMA) has launched a regulatory sandbox specifically for testing blockchain-based financial services.

Meanwhile, the UAE leads, together with Saudi Arabia, in crypto adoption among Gulf countries. The investors from both countries combined generated capital gains of more than $500 million from crypto ventures in 2023.

In Saudi Arabia, most crypto investors use international platforms and accounts opened in foreign banks to trade crypto, since local banks are still undertaking a very cautious policy regarding any crypto buying and selling operations using local banking accounts.

Qatar

Currently, Qatar holds a ban on crypto trading, but the country supports digital ledger technology (DLT) and is trying to figure out a more nuanced approach to the regulation of digital assets. The Qatar Central Bank and the Qatar Financial Centre Authority (QFCA) have jointly unveiled the QFC Digital Assets Framework in October 2023, which seeks to regulate investment tokens representing underlying assets that are specified products under the current financial legal QFC framework.

Key aspects of this framework include the introduction of legal guidelines regarding the issuance and circulation of investment tokens. These rules stipulate that any activities involving such tokens require authorization and supervision by the regulatory bodies. Moreover, the Digital Asset Regulations 2023 define what an accepted token is, revealing provisions for token transfer, ownership, and relevant rights, and establishing the scope of activities for approved token service providers in the QFC.

As far as DLT is concerned, a number of Qatari governmental entities and private structures, especially in the banking sector and fintech sphere, are scaling up blockchain implementation. The QFCA has tested a typical framework of the local blockchain ecosystems last year and is following this path this year. Qatar demonstrates an open stance towards new innovations and is ready to further update its regulation of fintech companies, taking into account that a growing number of players in the industry leverage blockchain technology in their day-to-day operations.

Oman

In a move to bring crypto regulation to Oman, last year the country's Capital Market Authority (CMA) gathered comments from the public and businesses on its blueprint of a regulatory framework aimed at governing digital assets.

The blueprint, which appeared on July 27, 2023, outlined a comprehensive regime for the digital (virtual) asset sector, including business requirements and the protection of market participants.

The primary objective of this innovative framework is to create a robust and flexible system tailored for the vibrant digital assets industry. This framework encompasses a wide range of prudential measures and business conduct standards, alongside stringent regulations aimed at thwarting market manipulation. These regulations are reinforced by vigilant surveillance protocols and effective enforcement mechanisms, particularly concerning the issuance and management of digital assets.

The blueprint included 26 questions, allowing key stakeholders and concerned parties to share their insights on regulatory and licensing rules for digital asset service providers, corporate governance, risk mitigation, and digital asset issuance.

The beginning of 2024 has been marked with a number of practical developments in the relevant field. At the start of the year, Oman's Ministry of Housing and Urban Planning (MoHUP) announced its roadmap for 2024, which will encompass 130 initiatives, including DLT among many other proposals. The Oman MoHUP has a plan to develop a multi-level portal whose structure will be based on blockchain.

Also in January 2024, the Oman Development Bank made its own way into the blockchain world by starting to transform its operations into a digital format utilizing blockchain for this purpose.

On January 29, the Oman Sohar port free zone struck a deal with the encryption mining firm Green Data City to develop a $210 million data computing center, which will include data mining. The data mining center is aimed at performing blockchain data mining as well as cryptocurrency mining. The packet of documents includes a land lease contract featuring the development of a 45,000-square-meter site that will house 20,000 servers from key manufacturers of mining equipment.

In February, another governmental body, the Ministry of Transport, Communications and Information Technology, joined the blockchain race and revealed the intent of piloting a Blockchain Land Transport eWay Bill.

In March, the Oman-based fintech infrastructure provider Mamun Ventures announced that it would pour $1 million into digital asset startups operating in compliance with local traditions. Earlier, in December 2023, the UAE and Singapore-based Triterras, a fintech company focused on digital trade and supply chain finance, partnered with Mamun Ventures to join efforts in developing this sphere in Oman.

The Unfolding Blockchain and Crypto Story

Major US and European companies are relocating to the region as the Gulf countries embrace blockchain and crypto. The US could lead this tech but instead looks like it is missing its piece of the pie. Blockchain adoption is more visible in the region.

In Dubai, exemplifying this trend, the UAE Pass application functions as a digital passport providing entry to a wide array of government services. The application's digital vault allows the user to store and share official documents digitally and is based on blockchain, as it securely records all necessary data and provides a higher level of transparency, traceability, and security of this system.

Besides DIFC's movement in the blockchain direction, the same trend has appeared in the Dubai Multi Commodities Centre (DMCC) as well. A total of 2,692 new companies joined DMCC last year, bringing the total number of entities in DMCC to over 24,000, according to its 2023 Annual Report. Finally, DMCC is now home to 600 blockchain and crypto-related companies.

Crypto mining is evolving in the region, and the Gulf countries' total Bitcoin hashrate accounts for 8% of the world's BTC hashrate. One of the breathtaking investments in this direction is Oman's crypto mining project launched in August 2023, with an investment budget of $1.1 billion.

The abundance of energy and the development of a balanced regulatory landscape are key factors playing a role in attracting mining business activities to the Gulf countries. Moreover, the anticipation of Bitcoin halving in April, 2024 sparked migration of US miners to low-cost power countries.

For cooling crypto mining equipment, the companies leverage the power of wasted flared gas combustion, and hydropower is also in play. This development underscores the Gulf countries' drive to take a leading part in the global trend towards green energy.

It's worth mentioning that these mining entrepreneurs also bring the whole ecosystem of blockchain and crypto-related services to the hosting countries, giving a boost to these activities in the region.