New ecosystem for digital assets set to emerge in 2020

Investors of digital assets are extremely optimistic that 2020 will see the emergence of a strong ecosystem in the UAE. The most recent one was Arabian Bourse (ABX), which received in-principal approval from the Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM) as a crypto asset exchange and custodian.

The bourse announced that it received a double-digit multi-million dollar investment from HBK-GoChain. The announcement completes a significant milestone in the roadmap for the creation of a fully-regulated, first-of-its-kind crypto asset exchange and custodian that focuses on global institutional and retail traders.

The ABX and HBK-GoChain ecosystem will act as a bridge, integrating the region's digital assets activity with other major digital asset centres around the world.

ABX is implementing the GMEX-powered hybrid centralised and blockchain distributed ledger technology suite. The exchange is building a fully-integrated ecosystem with well-experienced promoters to become the preferred venue for crypto assets listing, trading and associated digital custody, depository and data services.

HBK-GoChain is a blockchain company that specialises in the supply chain, e-government, central bank digital currencies, payments and financial services. Its network is the fastest Web-based protocol and client in the world at 1,300 transactions per second.

"In line with the vision of the UAE and its leaders we realised the importance of adopting next generation technologies like blockchain and digital assets," Sheikh Hamad bin Khalifa bin Mohammed Al Nahyan, Chairman of HBK-GoChain, said.

"To be actively involved in these businesses and become the industry leader we invested in GoChain and followed up by investing in Arabian Bourse. These investments are very strategic to our group and we believe that Arabian Bourse with its well experienced founders is best placed to be our partners. As a definitive goal we would like to replicate this business model in other parts of the world," Al Nahyan said.

Similarly, Miami International Holdings (MIH), the parent holding company of MIAX Options, MIAX Pearl and MIAX Emeral options exchanges (the MIAX Exchange Group), and MidChains, an upcoming digital asset trading exchange based in ADGM seeking to operate under the FSRA framework, announced that MIH has agreed to purchase an equity stake in MEEG Holdings, the parent holding company of MidChains. As part of the agreement, the parties will pursue joint technology licensing and product listing opportunities internationally, including in the Middle East and Bermuda, subject to regulatory approval.

"We are always looking for new opportunities to address emerging markets, especially in the digital asset sector, and we are confident that MidChains will establish itself as one of the world's foremost digital asset trading exchanges," said Thomas P. Gallagher, chairman and CEO of MIH. "This strategic alignment will enable both MIH and MidChains the ability to provide digital asset products to customers on a global scale."

MidChains is seeking to become one of the world's first fully-regulated exchanges for digital asset trading and investing with a direct access public exchange. It expects to launch in the international financial center and free zone ADGM in mid-2020, subject to FSRA approval. Current investors in MidChains include Mubadala Investment Company, one of the world's leading sovereign wealth funds.

"We are thrilled to be partnering with such a well-recognised exchange operator as MIH," said Basil Al Askari, co-founder and CEO of MidChains. "This is a tremendous opportunity for both parties, and we look forward to working with MIH and the MIAX Exchange Group on numerous technology and digital asset product collaborations following launch."

2020 is most likely to be the year of the rising digital asset markets in the region, with UAE leading the space, says Nameer Khan, chairman of the Mena Fintech Association.

"One of the biggest indicators of growing adoption of cryptocurrency is the entry of regulated digital asset exchanges, which has attracted global players to an untapped opportunity and conduct business with legit and solid regulatory regimes. Not to forget the comprehensive operating a crypto asset business (Ocab Framework) issued for extensive regulations to address matters relating to digital assets by the FSRA. Such developments have not only created an opportunity but an environment that encourages the retail and institutional digital asset with comfort and security - which has been a major concern lately with unregulated platforms globally."

As the digital assets and crypto currencies are gaining fast adoption in the region, there will be some bad actors for whom there need to be strict measures by the authorities to ensure the controls are in place and the retail and institutional investors/stakeholders are protected, cautions Khan.

Cryptocurrencies are now legal in 111 countries. Many governments are rolling out new regulations, pilot programmes, and short-, medium- and long-term projects, from cross-border payments to sovereign currencies.

There's an upswing in interest by financial institutions and crypto hedge funds, who are rushing to invest in cryptocurrency right now. Around 70 per cent of central banks are exploring central bank digital currencies, and crypto exchanges are preparing for increased demand from institutional investors.

Billions in venture capital are funding, purchasing, and developing innovations in the blockchain and cryptocurrency industry. Exchanges are scaling up to receive an influx of institutional investors.

Blockchain and digital assets are among the fastest-growing investment sectors and market allocations in family offices.

The world is catching up as several Mena countries are actively developing official digital payment solutions, distributed ledger technologies, settlement systems, and exploring state-backed cryptocurrencies. An increasing number of countries are easing their restrictions, developing new legislation, and accepting cryptocurrency.

As cryptocurrencies are becoming mainstream, the market is rising to serve user needs. More than 5,000 cryptocurrency-dispensing ATMs enable users around the world to purchase crypto or, at some kiosks, sell crypto for cash. Some countries' citizens are turning to cryptocurrencies as a crisis response to the collapse of their economies and banking systems.

Sally Khudairi is co-founder and CMO of OptDyn, said crypto enthusiasts and early-stage investors are seeing continued growth across the digital currency ecosystem.

"Those who are still deciding whether to dip their toe in the space should know that it's a good time to get started."

OptDyn is the maker of Subutai, the world's first intelligent Edge solutions that monetises next generation Cloud Computing, IoT, and blockchain innovations across a peer-to-peer crypto-sharing economy.

Khudairi said cryptocurrencies are no longer a trend that can be swept aside. "New regulations, investments, and infrastructures are continuing to be developed for a wide range of blockchain products."

The market is still adjusting: people often talk about 2017, where the price of Bitcoin jumping 20-fold over the course of 12 months and hundreds of ICOs drew more than $5.5 billion.

"As with any investment, there are risks. We cannot stress enough the necessity to steer clear of the hype and educate yourself: do your research. Understand your country's legislation and taxation laws pertaining to cryptocurrency. Start small and keep calculated risks in mind. If you are armed with your research, there's no reason to hesitate," Khudairi said.

Adoption of cryptocurrency grows at faster pace

Arshad Khan, co-founder of Arabian Bourse, said the UAE and Saudi central banks are working on a digital currency called Aber. He said Emaar has also announced launch of its digital token that shows that apart from the government, private sector is also fast adapting this new technology as a means for payment and investment.

"Cryptocurrency ATMs can now be seen where buyers can buy cryptocurrencies," he said, adding that the Arabian Bourse shall be a regulated exchange and custodian for crypto asset trading.

"With our expertise in technology and a unique experience of establishing exchanges, we shall establish smooth, secure and user-friendly market place for crypto asset trading," he said.

"A regulated exchange shall ensure security of deposits, fiat transfers between bank accounts, fast order execution, surveillance and risk management, efficient settlement process, proper know your client (KYC) and KYT activities. Making the entire ecosystem safe and secure," Khan said.

Crypto to see exponential growth in coming years

Alphabit is a DFSA-regulated crypto fund that has been operational since June 2017 and claims to have seen phenomenal returns.

"I believe crypto trading volume in the UAE has been at a decent level over the last few years and I expect to see exponential growth over the coming years. 2020 is the year I believe huge growth in trading volume will happen to coincide with anticipated onshore regulation of crypto coming into effect along with predicted revival of the market," Saeed Al Darmaki, managing director of Alphabit, said.

Darmaki said that globally, China leads the way on crypto followed by the US then Europe. The market has seen enormous growth over the last 10 years however the crypto bubble in 2018 has been a very tough lesson for everybody in the market.

"I am still very bullish on the market for both short and long term returns going forward however traders/investors need to do thorough technical/fundamental analysis before trading/investing," Al Darmaki said.

The UAE can learn a lot from many different jurisdictions around the world such as the Caribbean where the technology is being used to unify the trade partners in that region on theircommon goals, using solutions that are designed with cross-border integration enhancing the relationships via trade, settlement, transparency and accountability.

"The Mena region can benefit massively from this type of technology being deployed in the right way with the UAE leading the charge," said Gabriel Abed, partner at Novelty Curve. Novelty Curve mentors the organisations in the UAE that wish to become a regulated trading outpost for the market of cryptocurrency participants.

"Our involvement is strictly limited to ensuring the right conversations are had with the regulators, the technology chosen is sound and the direction taken is in favor of ensuring a responsible, secure and robust environment is created for the trading of any type of digital asset," added Abed.

"Once the regulated exchanges are established and operational, I suspect we will see an incredibly large boom in the amount of persons in this country taking an active exposure in trading many different types of cryptocurrencies," he said.