Shark Tank’s O’Leary touts Abu Dhabi as crypto centre

Reuters

• Investor Kevin O’Leary sees potential
• Says M2 exchange is ‘very promising’
• Others say UAE will not overtake US

Venture capitalist Kevin O’Leary believes Abu Dhabi could soon eclipse the US as the global centre of crypto innovation.

While regional insiders told AGBI they agreed the UAE is set to be a significant digital assets hub, they said overtaking the US remains a tall order.

In a Fox Business interview this week, O’Leary said the US’s stringent regulatory landscape was driving crypto innovation to other international markets.

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The investor, a “shark” on ABC Television’s Shark Tank, suggested that M2, an upcoming virtual asset platform in Abu Dhabi, has the potential to become the leader in crypto exchanges.

He believes it could surpass Binance, the world’s largest exchange, which is currently contending with regulatory headwinds in the the US and Europe.

“There’s a trillion dollars in institutional capital sitting on the sidelines, waiting for an exchange that is regulated, compliant and ready for institutional capital,” O’Leary said.

“Abu Dhabi’s M2 exchange seems very promising. It’s a shame we didn’t get there first.”

Once a paid spokesperson for the now-defunct FTX crypto exchange, O’Leary claims that M2 is “backed by billions of dollars” and “remarkably stable”, and poised to “set the benchmark for exchanges” owing to its liquidity.

M2 recently secured a Financial Services Permission licence in the Abu Dhabi Global Market from the Financial Services Regulatory Authority, paving its way for a launch this year, subject to regulatory approval. 

The platform is authorised to offer institutional and retail clients in the UAE the ability to buy and sell virtual assets such as Bitcoin and Ethereum. It says it will also provide seamless fiat to cryptocurrency conversions, an essential trust factor for investors.

Sources familiar with the matter told said that M2 is also in talks to incorporate with a prominent regional financial institution. This would allow users to on-ramp directly to a regulated bank.

On-ramp crypto refers to the process of exchanging fiat currency (such as US dollars) for cryptocurrencies.

Against the backdrop of the FTX fiasco, where some $10 billion of customer funds went missing, such a banking partnership could address the liquidity concerns haunting many exchanges.

US competition

Hubertus Thonhauser, chairman at Dubai’s Ghaf Capital Partners, was more measured in his options than O’Leary.

He said that the UAE cryptocurrency sector’s regulatory clarity and liquidity has put the Gulf state on course to become one of the world’s top crypto hubs.

However, he pointed out it should be observed that the US benefits from a blend of talent, risk capital and innovation culture born from university campuses that are renowned for inventing new technologies and will catch up in the near future.

“The US, like the UAE, has the general spirit of risk-taking,” he said. “But they [the US] also benefit from a huge domestic market.”

Echoing this sentiment, Nicola Buonanno, area vice president of Southern Emea at Chainalysis, cautioned it would be “too early to rule out the US as a market for crypto pioneers” because of to its substantial market size.

Chainalysis’s latest Geography of Cryptocurrency Report shows that the US led in crypto market volume. More than $1 trillion was received between July 2022 and June 2023, vastly surpassing the UAE’s $35 billion.

But Thonhauser believes the UAE’s tech-savvy policymakers and entrepreneurial ecosystem still afford it a distinct edge.

He said compliant platforms such as M2 stand out significantly from lightly regulated ones because of adherence to strict anti-money laundering and “know your customer” protocols, and robust customer asset protection measures.

In contrast, many unregulated platforms lack safeguards against financial crimes such as wash trading – the buying and selling of securities or cryptocurrencies without any change in beneficial ownership or market risk to create artificial market activity. Wash trading can be used to manipulate prices or volumes to deceive market participants. 

“A large portion of crypto volumes you see on exchanges is wash trading,” Thonhauser said. “A regulated exchange cannot do that.” 

A regulated exchange “operates similarly to a stock exchange”, Thonhauser said.

Additionally, regulated platforms segregate roles such as brokerage, trading, market-making and custody. Conversely, many laxly-regulated exchanges often blur functions, increasing security risks.

While Thonhauser does not see M2 upending Binance, he agreed on its allure for institutional capital.

“Typical crypto speculator traders will probably stick to a Binance,” he said.

“If you are a compliance manager of a sovereign wealth fund or pension fund, you’re not going to trade on Binance.”

M2 said in a statement that it also aims to diversify its offerings, including derivatives and a competitive yield product.