Analysis Banking & Finance The beginner’s guide to cryptocurrencies By Harry Clynch September 14, 2022 Reuters/Jose Cabezas A shopkeeper shows off her bitcoin wallet. The digital currency gained 27 percent in July The United Arab Emirates is becoming a crypto hubBitcoin and ethereum dominate crypto activity in MENAIndustry grew 1,500% in 2021 but has been rattled by a recent crash Cryptocurrencies are a new form of digital money that are not issued or maintained by central authorities. Instead, they usually operate through blockchain technology, a shared digital database that facilitates and records transactions between individuals. The use of blockchain technology means crypto transactions tend to be cheaper and faster than those involving traditional fiat currencies. The most widely traded cryptocurrency is bitcoin, which was launched in 2009, partly because decentralised solutions became more attractive after the financial crisis. A gleam of light, deep in the murky crypto minesCentral banks go digital, bit by bitDeFi could go mainstream, with a little help from Gulf regulatorsShould your business jump on the bandwagon? Last year, bitcoin reached $1 trillion in market value, while other major cryptocurrencies, such as ethereum and cardano, also saw huge increases in value. The increased prominence of cryptocurrencies over the last few years has led to higher adoption rates across the world. Activity has increased by 1,500 percent According to Chainalysis, the Middle East is one of the fastest-growing crypto markets. Between June 2020 and June 2021, the region accounted for 6.6 percent of global crypto activity, an increase of 1,500 percent from the previous year. Growth in the region continues to be driven in particular by the UAE. It has emerged as a major player by offering licences to global exchanges and encouraging crypto businesses to set up in Dubai and Abu Dhabi. Unlike other major markets such as China, which has banned crypto altogether, regulators in the MENA appear more open to developments in this space. Crypto trading in the region also tends largely to mirror global trends. Saxo Bank runs a crypto platform that has processed over $3.4 billion in trading volume since its launch in May. It recently released data showing that bitcoin and ethereum, the world’s two largest cryptos, are the most traded digital currencies in the MENA region – 57 percent of transactions on Saxo’s platform involved bitcoin and 40 percent ethereum. While the most prominent global crypto exchanges are active in MENA, the region is also home to a number of popular local exchanges. BitOasis, the MENA crypto trading platform, partnered with media company MBC Group BitOasis, which is fully regulated in the UAE, is the oldest and largest exchange in the region. Bahrain-based CoinMENA is another popular choice, partly because the company is certified by the Shariyah Review Bureau. This is important because cryptocurrency trading has proven controversial in the Muslim world. Some Islamic scholars have argued that, given the large amount of volatility and uncertainty involved in crypto markets, trading crypto is essentially the same as gambling – and is therefore haram. To trade crypto on these platforms, users simply need to register for an account, supply some form of documentation (like a valid passport), and go through the ID verification process. Users are then able to deposit funds in their local currency and purchase the wide range of cryptos available on the exchanges. Dubai crypto chief predicts a $200,000 bitcoin by 2024Crypto is ‘more like a Rolex than currency’The UAE must up its fight against money launderingBlackRock may spur wealthy to make crypto leap Rising interest rates and falling crypto values While crypto adoption grew considerably in 2021, both in MENA and around the world, the industry has certainly been rattled by this year’s crash. Since the start of the year, the value of bitcoin has more than halved, as has that of ethereum. Another major cryptocurrency, terra, collapsed in value altogether and is now down over 99 percent. This crash was largely driven by rising interest rates worldwide. With inflation rising, major central banks, including the Federal Reserve, have moved to tighten monetary conditions by pushing up rates. Bitcoin and ethereum have more than halved this year largely due to rising interest rates This has encouraged many investors to move from high-risk cryptocurrencies into safer assets. That said, many expect cryptos to mount a recovery eventually – and point out that the market has frequently crashed before. Indeed, bitcoin gained 27 percent in July, its strongest month since October 2021. How to get into crypto Investing in cryptocurrencies will always be a high-risk choice, but there are signs that consumers are still taking an interest in digital assets. As inflation continues to rise in the MENA and beyond, some may decide to try to protect the value of their savings by taking a risk on crypto. Those who do should proceed with caution – and not invest more than they can afford to lose. It’s preferable to use fully regulated, on-shore crypto exchanges such as BitOasis, because regulation helps ensure consumers are better protected from fraudulent activity. Investors should also be alert to the danger of crypto scams and take steps to protect themselves from fraudsters. Cryptocurrencies have been controversial in the region for other reasons, too. Some are concerned the technology gives states such as Iran the opportunity to circumvent sanctions. However, crypto adoption is continuing to increase: Gemini Exchange recently found that the UAE has the third largest adoption rate in the world. This is partly being driven by wealthier individuals who are looking to achieve returns on investments. But crypto is also increasingly being used for practical reasons by groups that have traditionally been excluded from the financial system. Refugees in Lebanon, who have long been unable to open bank accounts, have used cryptocurrencies as an alternative way to send and receive cash. With increased levels of adoption among individuals, crypto funds listing on major exchanges and governments embracing the technology, it seems likely that the Middle East will continue to experience substantial growth in this area.