2022 was a brutal year for crypto. From the complete failure of FTX to the total collapse of Terra, the crypto market lost over $2 trillion last year. Top cryptocurrencies such as Bitcoin and Ethereum lost over 60% of their value, and consumer confidence in the sector fell drastically. 2022 marked the start of the second crypto winter.
And yet, despite a tumultuous period for the global cryptocurrency sector, with major digital currencies experiencing significant losses in 2022, Dubai has managed to position itself as a stronghold of crypto innovation and resilience. This success is largely due to the emirate's strategic policies, which have focused on creating a regulatory environment conducive to growth, attracting top talent, and fostering a robust ecosystem for virtual asset businesses.
The establishment of the Virtual Assets Regulatory Authority (VARA) and the subsequent introduction of a new licensing regime have been instrumental in providing clarity and security to investors and businesses alike. Furthermore, efforts to lure top-tier talent and startups, exemplified by initiatives such as the Dubai Multi Commodities Centre’s (DMCC) accelerator programme have ensured a steady influx of expertise into the region.
Based on several data points including research and development as a percentage of gross domestic product (GDP), crypto ownership, crypto-specific events, capital gains tax rate, and the number of crypto companies in a location, Dubai is expected to attract future investments and become a hub for crypto startups, said a recent report by Recap.
Regulation and the policy push
Policymakers in Dubai have led the charge to position the Emirate as a global crypto hub. According to Mohammed AlKaff AlHashmi, the Co-founder of Islamic Coin, the institutional support in Dubai is significant. He credits visionaries within the establishment for helping the development of advanced technology initiatives originating in Dubai.
Anas Bhurtun, Co-founder and CEO of Arts DAO, said, “What I like about what they (the UAE government) have done here, is that they have allowed the germination of crypto to happen.”
Suzana Obradovic, the Regional Director of Chainalysis, shared similar sentiments. She said, “The UAE government has been upfront in providing practical innovation. They are very vocal about their support for the industry, for regulating it in general, thus making it accessible to everybody.y They are fully engaged with crypto companies at different levels, to make sure that everything is watered down in a secure way.”
Regulation in the virtual asset space helps prevent market manipulation, money laundering, online fraud and other cyber security risks apart from protecting investors, and identifying the greater risks associated with the technology. Policy and regulation also help ensure that good crypto actors are promoted and mainstreamed.
Last March, the Prime Minister of the UAE and the ruler of Dubai, HH Mohammed bin Rashid Al Maktoum established the Virtual Assets Regulatory Authority (VARA), the world’s first independent regulator for virtual assets. VARA was tasked to oversee the growth of the virtual asset business environment including regulation, governance and licensing. The goal of VARA is to position Dubai as the international hub for virtual assets.
When it was originally announced, HH Mohammed bin Rashid Al Maktoum stated that the goal is to “Establish the UAE and Dubai as a key player in designing the future of virtual assets globally.” Commenting on the move, Binance CEO Changpeng Zhao (CZ) said, “Regulatory clarity is so important. This new virtual asset law in Dubai is a great step forward.”
The creation of VARA and its initiatives have sparked international interest in the UAE's developing crypto market. This is evidenced by the entry of global players such as Binance, Kraken, Bybit, FTX, and Web3 Holdings FZE, an NFT investment holding company.
The establishment of VARA and Dubai’s enactment of the Virtual Assets Law are part of the UAE's efforts to foster a supportive environment for the growth of its crypto industry. While the industry was largely unregulated a few years ago, these recent legislative measures indicate the government’s interest in mitigating the risk of potential financial crimes in the emerging industry.
Earlier this year, amidst the crypto winter, VARA introduced a new licensing regime. The crypto industry in Dubai has welcomed the new framework. Talal Tabbaa, Founder of regional crypto exchange, CoinMENA has praised it as elegantly designed.
Under Dubai's new rules, all entities planning to offer one or more crypto-related services in the jurisdiction must seek the relevant authorisation and licences. The framework is accompanied by four compulsory rulebooks for service providers and seven activity-based rulebooks that set out requirements by the type of service offered.
Attracting crypto talent
Dubai has gone out of its way to attract top crypto talent. The Dubai World Trade Centre (DWTC) has become a dedicated free zone for regulated virtual asset businesses. The specialised zone for virtual asset businesses allows for: foreign ownership; zero corporate tax; business start-up packages; co-working and office spaces, and access to a community of over 1,400 companies.
Recently, Dubai Multi Commodities Centre (DMCC) and TDeFi, a global Web3 incubator and consultancy company, entered into a partnership aimed at offering a new accelerator programme for Web3 and blockchain companies at Dubai’s DMCC Crypto Centre. The month-long programme will offer companies mentorship sessions and is expected to attract a new wave of crypto firms to the emirate.
Within a year, there will be two sessions and companies will be given guidance and services from DMCC to formally establish at the crypto centre. Crypto Centre has over 550 members currently, making it one of the region's largest concentration of Web3 and blockchain companies. Besides the value-added services that DMCC offers, it is the ecosystem that is most important for Web3 and blockchain companies.
DLT infrastructure provider Blockchain Smart Technologies CEO Eva Porras stated, “We are thrilled to be a part of the blockchain ecosystem in Dubai. This expansion represents a significant milestone for our company as we continue to grow and expand our presence in the Middle East and beyond.”
ByBit, a crypto exchange with 15 million users, recently moved its headquarters to Dubai. Ben Zhou, CEO and Co-founder of ByBit, said, “We're going to start hiring massively here in the UAE and the region. We’ve already talked to universities to host hackathons and provide internships for the local kids.” In addition, Dubai has attracted some of the world’s biggest companies in cryptocurrencies including Crypto.com and Hex Trust, among others.
Due to special zones such as Dubai Financial International Centre (DIFC), there is a large number of financial firms and financial activities that happen in the region, this allows for increased opportunities for collaboration between traditional finance and the virtual sector.
The Indian link
Dubai has become the crypto capital of India. Many Indian virtual asset companies started moving to Dubai due to the more favourable policy environment that does not curtail any innovation, along with all the other perks that Dubai has to offer such as access to talent, high quality of life, no tax, access to global markets, transparency and ease of doing business.
The UAE’s favourable geographical position presents opportunities for businesses in the form of large markets. The UAE’s proximity to billions of people in multiple markets presents firms with great opportunities to grow in the Middle East, North Africa and even the larger Asian region. Another reason why so many Indian startups are moving to Dubai.
The establishment of VARA and a new licensing regime have provided the crypto industry some much-needed operational clarity and security to businesses, who are now driving the innovations and investments into the space. Dubai's welcoming stance towards crypto has also extended to international markets, with many Indian virtual asset companies relocating to the Emirate to take advantage of its favourable policy environment.
Dubai's proactive approach towards crypto regulation and its commitment to nurturing the sector has enabled the city to withstand the crypto winter and affirm its position as a hub for virtual asset innovation and investment.
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