Why crypto is going mainstream and what it means for the UAE

A digital asset ecosystem is starting to develop in the Emirates and has the potential to grow exponentially

A representation of virtual currency Bitcoin is seen in front of a stock graph in this illustration taken March 15, 2021. Reuters

Over the past month, the market in digital assets and cryptocurrencies has witnessed significant volatility, but pricing risks remain clearly biased to the upside.

To put this into numbers, the price of Bitcoin has increased from $33,758 a month ago to the current price of $57,300 as of Sunday. At the same time, the price of Ethereum, the second-most dominant digital asset, has risen from $1,347 to its present trading value of $1,787.

The driving force behind this improvement can no longer be simply dismissed as speculation. While it has been frequently commented that an increased flow of institutional funding into the digital asset space would continue to keep upward pressure on prices, recent events have demonstrated that mainstream adoption is far closer than many had anticipated.

One of the most widely publicised examples of this was last month’s announcement from Tesla that it had purchased $1.5 billion worth of Bitcoin tokens.

In addition to this, the electric vehicle maker said it would, in future, accept Bitcoin as payment for its cars. The takeaway from this development is that agile and game-changing industries are seeing the benefit of cryptocurrencies, and this is arguably becoming one of the strongest catalysts for their widespread global adoption.

This argument can also be supported by statistics. Perhaps the most eye-catching of these is the rise in market capital of various cryptocurrencies and digital assets to more than $1.7 trillion, almost 300 per cent of the total value that we saw at the start of the year, indicating that demand is currently outpacing supply.

Further evidence of increased demand can be found from analysing statistics published by regulated digital asset exchanges, which, in many cases, show 200 per cent increases in new user registrations.

But what does this mean for the world in general and for the UAE in particular?

The UAE has been a hub of innovation for decades and this continues in the virtual asset space

Globally, many companies across various sectors are opening their eyes to the crypto enthusiast for the first time. In particular, they are becoming more aware of a new niche of customer, and one with significant financial resources; a new source of wealth for them to sell their products and services to.

There is also a growing awareness and fear that those who linger for too long before accepting this change will likely lose out on a new segment of the market. This can trigger a faster-than-anticipated adoption, which is resulting in greater upside surprises for digital assets.

In the UAE, the impact may be more significant. Not only has the government been backing blockchain technology for some time now, but the sovereign wealth funds have also invested in sector start-ups and regulation is years ahead of other parts of the world.

A cryptocurrency ecosystem is starting to develop and has the potential to grow exponentially on the foundation and infrastructure that the leadership, sovereign wealth funds and regulators have created in both Abu Dhabi and Dubai.

One of the most important actors in this ecosystem will be Kraken. It is one of the three largest crypto exchanges in the world and has been working on setting up a UAE subsidiary, Kraken Mena, for the past two years.

With Kraken Mena ready to commence operations in the Abu Dhabi Global Market shortly, several value-creating opportunities will be available for individuals, companies and institutions.

These benefits start with allowing individuals a safe, economical and regulated gateway to add cryptocurrencies to their portfolio and savings. However, perhaps more significant for the economy will be the ability for companies to tokenise and work with an international exchange that features high volumes, allowing them access to billions of dollars of funding.

The UAE has been a "hub of innovation for decades and this continues in the virtual asset space", Austin Alexander, from Kraken's chief executive's office, recently said.

"The regulatory framework that the ADGM has crafted is built from scratch for Bitcoin and virtual asset markets," he added. "The momentum and ambition clearly present an opportunity for the UAE to become a global financial hub in the digital age.

"As Bitcoin matures and its market cap breaks the $1tn mark, it is evident that the potential benefits to seizing this opportunity can be measured in the hundreds of billions or even trillions."

Developments such as these will not only increase direct foreign investment into the country, but it is also likely to eventually open opportunities for viable SMEs to plug their financing gaps.

Coupled with the stimulus that has already been provided by the government through various economic schemes, this could trigger more sources of economic growth in the future.

The UAE has ensured it remains at the cutting edge of such world-changing developments and it is incumbent on its citizens, residents and stakeholders to be aware of these benefits and to utilise them effectively.

Mohammed Altajir is the founder and project custodian of Tratok Portal