Cryptocurrencies have perhaps been the biggest new product or innovation to arrive in the global financial markets since the 2008 financial crisis. While that crisis was largely due to the failure of the housing market in the United States, and the collapse of the highly leveraged system built on top of it, it had global repercussions. Thus, imagine the effect of a similar collapse, but in the crypto market, which is global in nature and thus will probably have a huge impact, even if the market itself is still quite nascent in terms of the money invested into crypto assets. Thus, with the rise in interest in Bitcoin and other cryptocurrencies, largely due to the huge increase in Bitcoin’s price over the past year, we are now seeing several governments revisit their stance towards cryptocurrencies. For example, the Supreme Court of India struck down a ban imposed by the country’s central bank on cryptocurrency ownership and trading in March last year, leading to an explosion in crypto exchanges and people looking to invest in cryptocurrencies. Similarly, there are several other countries where regulations are being tweaked or fresh ones are being drawn up to deal with this new phenomenon, with the UAE being one of them, specifically in Dubai.
The Dubai Financial Services Authority, which is the financial regulatory authority for the emirate, is working on improving its existing cryptocurrency related. The DFSA is planning to introduce a framework for regulating various digital assets soon, as part of its 2021-22 business plan. This framework will look to expand the existing regulation of digital asset issuers and trading platforms, and will include Bitcoin and other tokenized securities in its scope. The authority is planning on publishing two consulting papers to ask for feedback on the proposed rules in 2021, and based on the feedback received, it will adopt the new rules by the second and third quarters of 2021. The new regulations will draw from best practices globally, and will also include specific Anti-Money Laundering measures. The first regulations related to cryptocurrencies were released in the UAE back in 2018, when the Financial Services Regulatory Authority, or FSRA, published its guidance towards cryptocurrencies, initial coin offerings and crypto exchanges for the Abu Dhabi market.
This is a great example to show how the UAE, and Dubai in particular, has been taking the lead on various new innovations globally, not just in terms of financial markets but in other sectors as well. We are seeing this in the gambling market as well, which is a sign of progress given how strict Islamic rules against gambling are. People in the UAE can however access gambling sites by using VPNs, and combined with easier access to cryptocurrencies, we may even see demand for live dealer bitcoin games and other services which use digital currencies and digital payment services. These are already proving to be quite attractive for online gambling providers, and thus could be a major way for them to enter the UAE market, if the popularity of digital currencies matches that seen elsewhere in the world.
We will need to wait and see what these rules for cryptocurrencies are in Dubai, but past history tells us that they are likely to be not too restrictive, and will allow for investors and traders to put their money into the crypto markets, but at the same time will look to protect those investors. This is only going to be a good thing for the markets in the country, and we can expect to see the crypto market in Dubai and the UAE grow over the next couple of years as more and more people are drawn to invest in it.
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