Dubai’s Crypto Dreams Start With New Regulations

The Persian Gulf financial nexus opened the world’s first dedicated crypto regulator, the Virtual Assets Regulatory Authority, or VARA, in 2022. It has issued a dozen licenses in the past year, including to global heavy hitters like Binance (which paid U.S. authorities a $4.3 billion fine last autumn) and Laser Digital, which is backed by Japanese financial giant

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That’s just the beginning, says Jimmie Lenz, a Duke University professor who organized a digital assets conference in neighboring Abu Dhabi last year. “The contrast with the U.S. is amazing,” he says. “They are leading with innovation there.”

The crypto-friendly stance is bearing real-world fruit in Dubai’s sizzling property market, where at least half of all purchases involve virtual currency, estimates Michael Kortbawi, a Dubai-based senior partner at law firm BSA Ahmad Bin Hezeem & Associates. “A lot of the buyers are expats from India or Russia who may have their money in crypto already,” he says.

The Financial Action Task Force, the global money-laundering watchdog based in Paris, gave this trade an implicit vote of confidence in February by removing the United Arab Emirates, the national entity that includes Dubai and Abu Dhabi, from its “gray list.”

So, can crypto really make a clean start in Dubai, with uses beyond speculation? Preventing the sort of naked plunder that Bankman-Fried practiced at FTX should be low-hanging regulatory fruit. “Dubai has got a lot of the blocking and tackling right,” says Austin Campbell, who teaches blockchain markets at Columbia Business School. “They get a B grade so far.”

Starting fresh with a new regulator also has advantages relative to more-established financial centers bidding for crypto business, says Sebastian Widmann, head of strategy at London-based digital asset custodian Komainu. Older-school competitors include Singapore and Hong Kong in Asia, and Monaco and Luxembourg in Europe. “Most jurisdictions are thinking how they can fit this asset class into traditional regulation,” he says.

VARA, for instance, has written explicit rules for staking, a sort of interest-bearing time deposit whose specifics are unique to the crypto world.

Campbell sees a role model for Dubai in Bermuda, which has emerged as a profit-churning global center for reinsurance. But cementing that sort of position takes decades, not two years.

For now, Dubai is attracting “crypto-native” firms with more ambition than track records, he says. The institutional players that crypto enthusiasts have been hoping will normalize the asset class are hanging back a bit. “If I’m an established asset manager or bank branching into digital assets, I’ll go to Singapore,” says Campbell.

Dubai’s crypto boomlet is, of course, also riding an industry bull run. Bitcoin’s price has more than doubled in the past six months. FTX looked great, too, as prices soared in 2021. The real test for its successors, and their regulators, comes with the inevitable next downturn.

One change is clear in crypto since SBF’s heyday: Its user base and business center of gravity are shifting to the developing world. “If you’re in the U.S. or European Union, you don’t need crypto,” Campbell says. “If you’re in Russia, Venezuela, or Myanmar, you might take your chances with the digital wallet.”

And in Dubai, you can cash it out.