The Middle East and North Africa region is the fastest-growing cryptocurrency market in the world, accounting for 9.2 per cent of global digital currency transactions from July 2021 to June 2022, according to a report by blockchain data platform Chainalysis.
Individual investors in the Mena region received $566 billion in cryptocurrencies during the period, an annual increase of 48 per cent, Chainlysis said in its 2022 Global Crypto Adoption Index, which was dominated by emerging markets.
Global crypto adoption levelled off in the past year after growing consistently since mid-2019. However, it has remained well above its pre-bull market levels in 2019, the research found.
The Mena region is “home to three of the top 30 countries in this year’s Crypto Adoption Index: Turkey [ranked 12], Morocco  and Egypt ”, the report said.
“In Turkey and Egypt, fluctuating cryptocurrency prices have coincided with rapid fiat currency devaluations, strengthening the appeal of crypto for savings preservation. The Turkish lira has inflated by 80.5 per cent in the last year; the Egyptian pound has weakened by 13.5 per cent.”
Bitcoin plunged from a record high of about $68,000 last year to trade at around $19,928 on Tuesday, while the cryptocurrency sector’s market capitalisation has fallen below the $1 trillion mark.
The sector's rollercoaster ride is far from over, dragged down by this year’s equity bear market, global economic uncertainty, higher interest rates and a sharp rise in the cost of living around the world, according to analysts.
Big, long-term cryptocurrency holders have continued to hold through the bear market. While their portfolios have lost value, those losses aren’t locked in yet because they haven’t sold, Chainalysis said.
On-chain data suggests those holders are optimistic the market will bounce back, it added.
“Users in lower middle and upper middle-income countries often rely on cryptocurrency to send remittances, preserve their savings in times of fiat currency volatility and fulfil other financial needs unique to their economies,” Chainalysis said.
“These countries also tend to lean on Bitcoin and stablecoins more than other countries.”
Turkey was the largest cryptocurrency market in the Mena region, with its citizens having received $192bn. However, this represented slower yearly growth of 10.5 per cent, compared with other countries in the region, the report said.
Meanwhile, Egypt was the Mena region’s fastest-growing cryptocurrency market, having recorded 221.7 per cent growth in transaction volumes annually.
Saudi Arabia also showed a strong potential as deal volumes grew by 195 per cent, said Chainalysis.
“In Egypt, digital currencies are being used as a means of savings preservation. Cryptocurrencies are an attractive means of protection again currency devaluation,” said Kim Grauer, director of research at Chainalysis.
“Also significant in the country is the use of cryptocurrency for remittances — the country’s national bank has already begun a project to build a crypto-based remittance corridor between Egypt and the UAE, where many Egyptian natives work.”
Lebanon was ranked third in the Mena region in terms of cryptocurrency transaction volumes, which rose by an annual 120.9 per cent, followed by Morocco (120.8 per cent), the UAE (37.2 per cent) and Turkey (10.5 per cent).
The Emirates recorded $38bn in cryptocurrency activity in the time frame, compared with $28bn in the previous year, the index findings showed.
The notable levels of grassroots cryptocurrency adoption in Morocco seem to be tied more to the government’s newly permissive digital asset stance than to any particular macroeconomic tailwinds, the report said.
“Adoption in the UAE is being driven by the country’s clear ambitions of positioning itself as a global crypto hub,” Ms Grauer said.
“Government support, forward-focused regulations, mechanisms for consumer protection and support for the establishment of crypto businesses are all driving the adoption of cryptocurrencies and Web3 technologies in the country.”
The main drivers of cryptocurrency adoption in the GCC are different from those in the rest of the Mena region, according to Akos Erzse, senior manager of public policy at Dubai-based cryptocurrency exchange BitOasis, who was quoted in the Chainalysis report.
“When you look at markets in the GCC, this adoption is driven by young, tech-savvy early adopters with relatively high disposable incomes, who are searching for investment options and have a conviction in crypto right now.”
Adoption is not only on the retail or customer side but also involves financial institutions and banks, which have begun to work with cryptocurrency businesses, he said.
Afghanistan, which was ranked 20th in the 2021 cryptocurrency adoption index, fell to the bottom of the list this year after the Taliban’s takeover of the country last August, according to Chainalysis.
“Under the Taliban’s rule, dozens of crypto dealers have been arrested and the ruling state agency, the Ministry for the Propagation of Virtue and the Prevention of Vice, has equated cryptocurrency to gambling and declared it haram,” the report said.
“In August and September — right after the Taliban’s takeover — Afghanistan’s on-chain activity spiked to a temporary high before taking an unprecedented nosedive.
“From November 2021 to today, the on-chain value received by users based in Afghanistan has averaged less than $80,000 a month, a far cry from the $68 million its citizens received in the average month preceding the takeover.”