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Digital asset exchange DEX received the green light from Abu Dhabi Global Market’s regulatory body as trading volume in cryptocurrencies booms amid the Covid-19 pandemic.
The brokerage will go live in the next three months with four of the most commonly traded cryptocurrencies - Bitcoin, Ethereum, Bitcoin Cash and Litecoin - available to purchase with local or international currency, Leon Smith, founder and chief executive, told The National.
Over the last decade, crypto assets have gone from niche, unregulated and under-the-radar electronic currency to a mainstream and increasingly regulated asset class. In turn, hundreds of trading platforms have proliferated. Last week, US FinTech giant PayPal unveiled plans to offer direct sales of crypto assets to its 305 million customers.
US-based Coinbase, one of the largest by trading volume, is not accessible in the UAE but other exchanges like Bittrex and China's Binance are. Over the last few year local UAE options have sprung from ADGM and Dubai International Financial Centre.
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DEX joins homegrown trading platforms like BitOasis and Bitex UAE, both started in Dubai, as well as Matrix and Glomax, both licenced by ADGM.
Regulated exchange firms are “the future of digital asset trading on a global scale,” Mr Smith said.
In order for exchanges to differentiate in this increasingly crowded market, strict regulations are key in order to bolster investor confidence regarding the protection of their assets, Nameer Khan, chairman of the Mena FinTech Association, told The National.
"ADGM has done a good job in keeping regulations very strict, making those trading platforms that register there competitive in terms of compliance and security," he said, compared to other jurisdictions like Switzerland, Malta and Singapore which have also developed regulatory frameworks.
A spokesperson from the regulatory authority at ADGM told The National that licencing for digital currency exchanges requires firms to meet extensive anti-money laundering and counter financing terrorism regulations, while providing consumer protection, technology governance and extensive transaction recording.
ADGM "expects to approve a number of further licenses over the coming months and continues to receive strong interest from prospective applicants”.
With people staying home during the pandemic, both crypto and traditional capital markets are seeing a surge in trading volume as more attention is being paid to portfolios amid an uncertain economy. This is a boon to exchange platforms which make their money on transaction fees.
Trading in the digital asset spot market in the first quarter of 2020 doubled compared to the previous quarter. Analysts forecast further increases in activity over the last three months, according to research firm TokenInsight.
"Volatility has increased massively," Mr Smith said, acknowledging a common criticism of the digital currency market. But he added that equity markets are seeing similar fluctuations.
Unlike traditional markets, crypto trading never closes.
"The roads can be built safely but ultimately it's how cautious you are as a driver," Mr Khan said. "It's the responsibility of any investor to define what safety looks like to them, and to control their own speed."