On the one hand, Gulf State regulators have been among the most eager to work with and attract crypto entrepreneurs, with a vision of integrating the technology into mainstream financial markets.
On the other hand, the Middle East features a high concentration of authoritarian regimes, rapidly inflating currencies and sanctioned entities — conditions ripe for the original use of crypto: to evade government control of money.
The volume of crypto transactions is growing faster in the Middle East than in any other world region, according to a report released last month by analytics firm Chainalysis. That’s thanks to both kinds of uses.
“Bitcoin adoption is at an all-time high in the Mideast, but it is very quiet due to harsh government policies towards Bitcoiners,” said Fadi Elsalameen, a Palestinian anti-corruption activist and fellow at the American Security Project, a nonpartisan Washington think tank. “It is already here, it’s being used, and it’s unstoppable.” Elsalameen said he began using Bitcoin after the Palestinian Authority shut down his bank account in response to his criticisms of its leader, Mahmoud Abbas.
Unauthorized use of the technology is popular in many other parts of the region.
Turkey, the country with the worst inflation on Earth, banned crypto payments last year, but it remains the largest market for crypto in the region, according to the Chainalysis report. In Lebanon, where inflation is also sky high and the banking system is in tatters, it is technically illegal to accept crypto payments, but Bitcoin and the dollar-backed stablecoin Tether have become popular alternatives to the licit monetary system.
In Saudi Arabia, some women secretly use Bitcoin as an alternative to bank accounts, which are subject to supervision by their male relatives, according to Alex Gladstein, chief strategy officer of the Human Rights Foundation.
Despite this, there are signs that the Saudi government is warming to blockchain technology after initially shunning it. Meanwhile, its neighbors, Abu Dhabi, Dubai and Bahrain have gone out of their way to work with crypto firms and create regulatory frameworks that cater to the technology in recent years.
“These dictatorships in the Gulf have every reason to support crypto as long as they can control it.” Gladstein said.
The approach has largely been a hit with crypto executives. Changpeng Zhao, the founder of the world’s largest crypto exchange, Binance, works out of Dubai, and came here on Wednesday and Thursday to speak at Abu Dhabi Finance Week and the Milken Institute’s Middle East and North Africa Summit. Zhao, whose exchange is reportedly under investigation in the U.S. for possible money laundering violations, scoffed at the suggestion of crypto-skeptic economist Nouriel Roubini that Emirati authorities should eject him from the country. In fact, while he was here, his exchange won a new license from Abu Dhabi’s financial regulator.
“Where you see less trust in government you see more aggressive blockchain adoption, where you see more trust you see less,” said John D’Agostino, a senior adviser to Coinbase, at a panel of industry executives at the Milken summit on Friday morning. “At the risk of sounding obsequious to our kind hosts here, the exception is the U.A.E., in that you have a very trusted, respected government that is being extremely progressive about installing blockchain solutions at the government level.”
That tone was a far cry from that of industry confabs in the U.S., where crypto executives routinely rail against federal regulators for their perceived sluggishness in accommodating the technology. Crypto firms have sued U.S. regulators in bids to pry open access to the financial system, and in the case of one Bitcoin-friendly bank, even argued in court that the entire Federal Reserve system is unconstitutional.
Basil Al Askari, the founder of Abu Dhabi-based crypto investment platform MidChains, said he often gets in arguments with other crypto moguls about his cooperative relationship with the state. Midchains is backed by Emirati sovereign wealth fund Mubadala and worked closely with the Financial Services Regulatory Authority of Abu Dhabi Global Market to win approvals before marketing his product.
He said the many crypto founders who have charged into legal gray areas first, and asked questions later, see his approach as overly cautious. “Our view was regulate first, and then work towards mass adoption through institutions in a compliant way,” he said.
Joseph Dallago, founder of the crypto brokerage Rain, takes a similar view. He worked closely with regulators in Bahrain on the development of the company, starting in 2017. He said the collaborative approach slowed him down at times but was that it was worth the wait to avoid compliance and reputational headaches down the line.
He said crypto’s original anti-government ethos has become “secondary” to the technology’s potential to automate the flow of money.
“At the end of the day,” he said. “It’s about creating a bleeding-edge financial system.”