UAE attracts record levels of FDI in cryptocurrencies
The UAE has become an increasingly popular destination for foreign cryptocurrency firms, as Emirati authorities have created a conducive regulatory environment and other nations increased their oversight of the digital asset industry.
A record eight crypto-related projects were tracked into the UAE during 2021. This represents an increase of seven projects from the previous year, placing the UAE as the third-highest destination globally, behind the US and Singapore, according to greenfield investment monitor fDi Markets.
In May 2021, Switzerland-based Crypto Valley Venture Capital (CVVC), an early stage venture capital firm with a focus on cryptocurrency and blockchain companies, established a co-working space and advisory practice in the Dubai Multi Commodities Centre (DMCC).
“With strong backing from the government, as well as great interest from its flourishing business sectors, Dubai is poised to emerge as a global hotspot and leader for innovative blockchain companies and applications” said Ralf Glabischnig, founder of CVVC, in a statement on May 26.
The openness to cryptocurrencies is reflected across traditional industries in the UAE. According to Arab News, the Gulf country’s national airline Emirates plans to accept bitcoin as payment and will be hiring new staff to develop applications related to the metaverse and non-fungible tokens — digital assets backed by blockchain technology.
Dubai has captured the lion’s share of inbound cryptocurrency projects. Its ecosystem is underpinned by major free zones, including the DMCC, which in May 2021 launched a space dedicated to cryptographic, blockchain and distributed ledger technologies. During the first quarter of 2022, some 16% of company registrations in the DMCC were directly linked to cryptocurrency, according to the free zone’s figures.
“Five years ago you wouldn’t see people coming to Dubai [for] cryptocurrency business,” said Marwan Alzahrouni, CEO of the Dubai Blockchain Centre, at Gitex Global, a technology event held in Dubai in October 2021. He added that the local authorities were “open-minded” and “willing to change regulations with reason”.
The Emirates Blockchain Strategy 2021 was formulated in 2018, outlining a plan to transform 50% of government transactions using blockchain technology. In February 2022, the Dubai Virtual Assets Regulatory Authority was created, with the aim to “promote the emirate as a regional and international hub for virtual assets and related services.”
Binance, the world’s largest cryptocurrency exchange, has reportedly been in talks with the DMCC over potentially moving its global headquarters to the free zone. The company has also discussed its relocation plans with the Dubai International Financial Centre, which attracted the Amazon FinTech Lab in June 2021.
Omar Soudodi, managing director of Amazon Payment Services, said the hub will “work with innovators and visionaries to turn exciting new ideas and concepts into transformational and disruptive forces in fintech.”
At the consumer level, there is clear enthusiasm for cryptocurrency in the UAE. Some two-thirds of UAE residents said they were interested in cryptocurrencies, while two-fifths of local respondents expressed trust in cryptocurrency firms, according to YouGov’s ‘Future of Financial Services 2022’ report.
Elsewhere, the restrictive attitudes of other governments contrast with the openness of the UAE. In India, policymakers have been working to “prohibit all private cryptocurrencies”, with a 30% capital gains tax imposed on all digital assets transactions, putting them in the same tax bracket as traditional investments, such as stocks.
Legislation was also passed in April 2022 in Singapore, requiring virtual asset service providers in the city state to be licensed if they are only doing business overseas.
Singapore-based Three Arrows Capital, a cryptocurrency hedge fund, announced in April 2022 that it was relocating its global headquarters to Dubai. The company’s co-founder, Su Zhu, said in a statement how the “energy in Dubai’s digital asset industry is electric right now.”