UAE to see widespread adoption of digital currencies

Blockchain and FinTech companies will benefit from the regulation of digital assets and acceptance by mainstream funds

GERMANY, BONN - MAY 22: Real money or digital crooks money? The photo shows a Bitcoin (physically) with gold bars. (Photo by Ulrich Baumgarten via Getty Images)
Powered by automated translation

The past month has seen renewed interest in digital assets, with the most significant bull run in more than 24 months. Such interest has kept cryptocurrencies underpinned, with Bitcoin rising as high as $19,092, not far from its all-time high of $19,655 on December 16, 2017.

It is not overly complicated to understand what lies behind these moves. The underlying fact is that public interest is growing in digital currency adoption. To see the best evidence of this, one only needs to look at PayPal, the US-based online payment gateway. The platform recently announced that it will permit its user base of more than 300 million customers to buy, store and conduct transactions with mainstream digital currencies.

This development will no doubt reinvigorate blockchain enthusiasts around the world, increase public awareness and do a great deal to promote acceptance. However, it may not even be the most significant signal that digital currencies are here to stay.

Many sector analysts and researchers will place more importance on the increasing participation of institutional funding. This increasing participation and investment in digital assets from “smart money” acts not only as an endorsement for digital assets but also demonstrates that their appeal spans beyond unsophisticated investors.

While the space has already witnessed investments from funds such as Ark Invest, Horizon Kinetic and Rothschild Investment Corporation, several newcomers are eager to add digital currencies to their portfolio. This includes the Guggenheim Funds Trust, which filed an amendment on November 30 with the Securities and Exchange Commission to invest up to 10 per cent of its $4.97 billion Macro Opportunities fund in Bitcoin.

For the moment, the lion’s share of the focus is predominantly on Bitcoin, the largest cryptocurrency by market capitalisation and the most well-known. However, over the longer term, Bitcoin is unlikely to be the only beneficiary. With regulation of digital assets becoming a reality and acceptance by funds starting to become the norm, it can be expected that other blockchain and FinTech companies will benefit from such sentiment and widening adoption.

The UAE has positioned itself as one of the best-placed countries to benefit from this technological revolution, being among the global leaders in the field. While digital assets and cryptocurrencies are an uncertain technology in many parts of the world, the UAE’s policymakers have embraced the efficiencies of blockchain, recognising the value of this constructively disruptive technology and started taking steps years ago to normalise its adoption.

The UAE's policymakers have embraced the efficiencies of blockchain, recognising the value of this constructively disruptive technology and started taking steps years ago to normalise its adoption

The regulatory updates on cryptocurrencies and digital assets approved by the Securities and Commodities Authority in October 2020 give clear guidelines concerning the creation, issuance and marketing of such digital assets in the UAE. Furthermore, it addresses the licensing of trading and all other funding activities related to crypto assets. This, in combination with the legalisation of ownership of digital wallets and assets, leaves consumers and investors in a protected environment with superior confidence, security and legislation compared with other parts of the world.

Under these circumstances, it is no surprise that locally developed blockchain applications have already begun to change many industries, including finance, hospitality, insurance and medicine to name a few. While the rest of the world finds itself with paper designs and drawing board plans of such applications, the UAE’s ecosystem already features these at a mature stage, with many products already delivering working solutions, secured partnerships and significant sovereign wealth funding. Most importantly, many of these applications are already adding value to the sectors they are disrupting.

The developments of the past month demonstrate that not only are digital assets here to stay, but widespread adoption is also likely to grow. Beyond the simple use of cryptocurrencies as a payment method, we will witness tokenisation across multiple sectors on a massive scale, as companies seek to leverage the benefits of blockchain technology to reduce costs, increase security, save time and increase the transparency and integrity of processes.

Given the habits of the UAE to stay at the forefront of cutting-edge technology, it is likely that blockchain applications will become part of everyday life in the Emirates.

Mohammed Altajir is the founder and project custodian of Tratok Portal