The Dubai International Financial Centre (DIFC) has claimed a world first with its new Digital Assets Law – the latest boost to the UAE’s reputation as a global hub for new technologies.
The DIFC, a special economic zone, has its own legal system based on English law. With governments around the world deliberating over how to align cryptocurrency with existing frameworks, it aims to stay ahead of the field, providing clarity to companies, investors and finance professionals.
While other jurisdictions adopted a ‘wait-and-see’ approach, the Emirates stole a march
Announcing enactment of the law in March, DIFC chief legal officer Jacques Visser stressed its significance. ‘We consider this legislation to be groundbreaking as the first legislative enactment to comprehensively set out the legal characteristics of digital assets as a matter of property law, and to provide for how digital assets may be controlled, transferred and dealt with by interested parties.’
Progressive legislation
While China, Singapore and Hong Kong may beg to differ with ‘groundbreaking’, given that their own court rulings have already recognised digital assets as property, the new law is progressive and far reaching. Much existing legislation – including contract, securities, insolvency, damages and personal property laws – must be amended to include virtual assets such as cryptocurrency, blockchain-based tokens and NFTs.
In March Abu Dhabi chalked up its own ‘first’ when cryptocurrency mining company Phoenix Group debuted on its securities exchange (ADX), becoming the first privately owned blockchain entity to list on a Middle East stock market following an oversubscribed US$370m initial public offering. ADX CEO Abdulla Salem Al Nuaimi said the listing not only added to diversity of products on the market but also signalled growing interest in the region’s digital economy.
Regulatory safeguards
Collectively and as individual emirates, the UAE has worked proactively to build a thriving industry centred on cryptocurrencies. It has also proved willing to provide the regulatory guardrails required to protect an evolving ecosystem and attract investors. While other jurisdictions, notably the US and UK, adopted a ‘wait-and-see’ approach, the Emirates stole a march.
‘The Middle East, particularly the UAE, is rapidly emerging as a hub for technological innovation and financial services’
By 2016 Dubai had produced its own blockchain policy. Two years later, Abu Dhabi Global Market launched the first of a series of regulatory frameworks, attracting businesses and investors.
This synergy of innovation and regulation is highlighted in Chainalysis’s latest Geography of Cryptocurrency Report, which estimates that MENA countries received US$389.8bn of crypto value between July 2022 and June 2023. The UAE is named ‘biggest standout’, seeing a significantly higher share of activity within the decentralised finance sector when compared with all regional neighbours bar Israel. This is ascribed to its ‘history of attracting top financiers, young tech entrepreneurs and cutting-edge companies from across the globe due to its uniquely innovation-friendly regulatory focus’.
Growth potential
One such company is global trading and investment platform eToro, which allows its 34 million users to hold a range of assets, including crypto. Having recently gained a licence to operate in Abu Dhabi, regional manager George Naddaf says that gaining a presence was a logical step, given the UAE’s emergence not only as a global financial centre but also as ‘a bridge between East and West’.
‘eToro’s long-term strategy for the Middle East is built on recognising the region’s enormous growth potential, especially given its tech-savvy population and approach to both traditional and digital assets,’ he explains.
‘The Middle East, particularly the UAE, is rapidly emerging as a hub for technological innovation and financial services, which aligns perfectly with our mission to make trading and investing accessible to everyone. We’ve found Abu Dhabi offers a supportive business ecosystem for financial services companies like eToro, and the fertile investment landscape will undoubtedly lead to opportunities, partnerships and potential collaborations.’
Change and challenge
Diversification into new technologies has proved productive for the UAE but headwinds remain. The introduction of corporate tax in a famously business-friendly jurisdiction came as a surprise to many, prompting concerns that it could deter incomers. The Federal Tax Authority says the new tax, effective since June 2023, affirms the UAE’s commitment to international standards for tax transparency. While the 9% levy does not apply to companies in the UAE’s 40-plus free zones, some will become subject if they fail to meet certain conditions.
Virtual assets themselves have come under scrutiny as their environmental impact emerges. Crypto ‘mining’ is an industrial metaphor for the computational process used to create virtual coins and verify transactions. Although its negative effects are less obvious than smoke billowing from factory chimneys, it is hugely energy intensive and contributes to greenhouse gas emissions.
Phoenix Group announced it would integrate hydrocooling into new mining hardware
Crypto companies are increasingly aware that they must be seen to address this issue. Before its stock market launch in Abu Dhabi, for example, Phoenix Group announced that it would integrate hydrocooling into new mining hardware. And while the UAE has invested in wind, nuclear and solar energy, it can expect to remain in the spotlight when it comes to crypto sustainability.
Global pace
The UAE has set the global pace with its crypto initiatives, but the race is only just beginning.
Recent decisions by the US Securities and Exchange Commission to allow investment in spot bitcoin exchange-traded funds (ETFs) and by the London Stock Exchange to accept applications for bitcoin and ethereum exchange-traded notes (ETNs) have opened more mainstream routes into digital investing.
And with Singapore, Hong Kong, Switzerland and Bermuda also competing to attract crypto business, the UAE will be aware it needs to stay on the ball.
