The Gulf region has emerged as the leading investment destination for blockchain and cryptocurrency companies. Gulf states have embraced crypto and Web3 technologies as part of their drive to diversify their economies away from hydrocarbons while fostering an environment conducive to entrepreneurship. Meanwhile, the US risks becoming a ‘Wild West’ for investors, with its unpredictable tangle of regulation and draconian, unpredictable enforcement.
Major technology companies have flocked to GCC capitals like Dubai, Doha, and Manama and are working hand-in-glove with regional governments to build a digital economy and bring to market new products that aim to solve real-world problems.
According to multiple metrics, the MENA region is one of the fastest-growing crypto markets in the world with data from Chainalysis showing an estimated $390 billion on-chain value received in the region between July 2022 and June 2023. While still behind other countries, it is the rate of growth that should pique one’s interest especially as it coincides with a retreat from western markets including the US and the EU.
Talal Tabbaa, a close business friend of mine and the CEO of CoinMENA based in Bahrain says: “This is a once-in-a-generation opportunity for the region to accelerate the shift of global capital eastwards. Crypto’s role in global finance will only increase, it is simply a superior monetary technology and will succeed regardless.
“We will either be early or late adopters! The GCC leadership recognises this and has chosen to embrace this new technology and is creating a business-friendly environment with sensible policies and regulations that encourage entrepreneurs to launch businesses here. For the first time, entrepreneurs would rather start businesses here rather than in Silicon Valley, which is a wonderful thing as this region is filled with untapped potential.”
For me, the principal reason for the downward trend seen in places like the US is the lack of regulatory clarity.
In the US for instance, the Securities and Exchange Commission (SEC) continues its hawkish drive to enhance regulatory scrutiny of the industry. This is resulting in a cloud of uncertainty facing business leaders, something that has been raised repeatedly by the likes of Coinbase CEO Brian Armstrong who has described the SEC’s actions as a ‘lone crusade’ against crypto.
I speak almost daily with business leaders and innovators who are setting up shop in countries like the UAE, Bahrain and Saudi Arabia and who are fed up with the outdated approach taken in countries like the US. For them, a lack of clarity combined with a declining market is resulting in business leaders seeking new opportunities in accommodating countries with renowned legal systems and financial mechanisms.
The GCC region has long been a commercial hub for international capital and dealmaking, with a young, entrepreneurial population driven by creating the next big thing. All of this is built on a solid bedrock of governance and stable leadership. There’s no better environment to build out digital banking and payment rails, creating a modern digital economy where money can move at the speed of commerce, without all the friction of the traditional banking system.
All crypto roads are leading to the Middle East, something major VCs are realising more and more. Some reports indicate that the region’s VC market size in terms of investment value is expected to grow from $3.2 billion in 2023 to over $5.2 billion in 2028 at a CAGR of 10.2 percent, indicative of the region’s digital assets charge.
Pursuing a different playbook to that chosen by the West as part of wider economic diversification measures is benefitting both the Gulf and those seeking fresh starts.
I recently visited the UAE where Abu Dhabi and Dubai have comprehensive regulatory frameworks in place for digital assets which address the pitfalls of other jurisdictional approaches. The Abu Dhabi Global Market (ADGM) does something the US SEC fails to: it provides clear guidance for the classification and treatment of digital assets, distinguishing between virtual assets like Bitcoin and digital securities.
Things are no different in Bahrain, a country pursuing a similar path to the UAE when it comes to crypto. Earlier this year, Singapore’s Whampoa Group, an investment firm with large stakes in global tech firms, announced its plan to set up the new headquarters of its new digital bank in Bahrain. Its CEO cited the country’s transparent regulatory framework and pledge to collaborate and innovate.
Similarly, Saudi Arabia is another GCC country embracing crypto and is currently the fastest growing crypto economy globally.
A rich culture of innovation and an environment receptive of technological change continues to spread across the Gulf region just as the opposite is taking place in the West. As more VCs and innovators move to the region, we can expect the future of digital assets to be extremely strong and for Gulf states to become even greater economic players.
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