Arab Night, Oil and Bitcoin: VIP|BTC on Crypto Firms in the UAE

Islam is one of the few religions that directly influences the laws and regulation of the financial market. The Quran forbids selling what you do not own: Muslims cannot short futures or buy put options. And what about cryptocurrencies?

The VIP|BTC exchange service discusses the preferences of Arab crypto investors, the specifics of doing business in the United Arab Emirates, and Dubai’s role in the region.

Not by Oil Alone

There is a myth that the UAE’s economy depends on oil, but this is not the case.

In the 1970s–1990s oil revenues indeed accounted for half the state’s budget. The sheikhs used this money to build factories, power plants, ports and office skyscrapers, and gradually adapted the laws to the needs of entrepreneurs.

Since 1990 the country opened 40 Free Economic Zones (FEZs), where companies from different countries could operate without transferring a large share of equity to Emirati residents.

Around the same time, developed Middle Eastern countries such as Iran and Lebanon lost economic stability. International trading companies and banks moved their branches to the UAE, and Dubai and Abu Dhabi became regional hubs of logistics and trade.

As a result, by 2017 the share of oil revenues in the budget fell to 20%. The bulk of the money began to bring construction, trade, tourism and financial services.

The authorities are supportive of new technologies. In 2014, Dubai opened the first cryptocurrency exchange igot.com, and in 2016 the Sheikh of Dubai endorsed an initiative that included developing regulation of the crypto market and funding blockchain research, including the digital national currency — the dirham.

Cryptocurrency Legislation in the UAE

The United Arab Emirates legalized cryptocurrencies in 2017. This followed a lengthy development of the regulatory framework by the Securities and Commodities Authority (SCA) in cooperation with crypto industry representatives.

As of now, UAE allows fundraising platforms, cryptocurrency custody services, exchanges and companies that tokenize assets.

“Although the legal system of the United Arab Emirates is based on Sharia law, the legislation quickly adapts to new conditions. For example, Sharia prohibits loans at a fixed rate of interest and currency speculation. At the same time, UAE laws allow banks, exchanges and trading venues to operate,” — comments a VIP|BTC lawyer.

The UAE is a federated state consisting of seven emirates with their own laws. This also applies to cryptocurrencies.

For example, in Abu Dhabi it is allowed to trade a limited set of cryptocurrencies, and companies in the Dubai Free Zone may work with any coins and even accept them as payment.

About 94% of the UAE’s oil reserves are located in Abu Dhabi. In Dubai there is almost no oil; it is the financial, trading and tourist center of the region, which accounts for 24% of the country’s GDP.

Dubai regulators have developed a legal framework for cryptocurrency trading and tokenization of securities, and are currently working on laws for dealing with utility tokens and stablecoins.

Business in the Free Economic Zone

Crypto companies can open a branch in the UAE in two ways:

• obtain an SCA license to operate in one of the emirates’ Free Zones;
• obtain authorization from the Abu Dhabi Global Market regulator and the Dubai Financial Services Authority.

In any case, it must be shown that the company complies with anti-money laundering (AML) laws, data protection and information security measures.

“Abu Dhabi typically attracts large companies with B2B products, since registration and renting there are more expensive. Dubai is the preferred jurisdiction for companies that deal with individuals,” explain VIP|BTC.

One of the most popular zones for crypto business is the Dubai Multi Commodities Centre (DMCC, Dubai Multi Commodities Centre). It currently hosts 18,000 companies of various kinds.

Since June 2021, the DMCC Crypto Centre has operated in Dubai, whose members help foreigners navigate UAE law, licensing and crypto-market regulation. The opening ceremony was attended by the UAE Minister of Foreign Trade, and the chairs of the Bitcoin Foundation, Tether and EOS Alliance.

In the DMCC Crypto Centre, blockchain conferences are regularly held: Crypto Expo Dubai, Future Blockchain Summit and World Blockchain Summit.

At the end of 2021 Binance, Huobi and several other crypto exchanges announced plans to relocate their headquarters to Dubai.

Crypto Trading in Arabic

According to the VIP|BTC team, residents of the UAE are generally receptive to cryptocurrencies, although many of the service’s clients are tourists.

Religion and mindset do not affect business in Dubai: the cryptocurrency market brings together cultures from around the world.

In the office, owners of businesses related to real estate, electronics or luxury cars often seek advice. Most of them buy cryptocurrency for long-term investment or diversification of savings, and only a small portion for trading.

The most popular cryptocurrencies are Bitcoin and USDT. Recently, Arabs have been buying NFTs eagerly; they like owning something unique.

Conclusions

The UAE has long ceased to be a petrol-station country and has become a regional leader in construction materials, foodstuffs and electricity.

Dubai has become a global financial centre, attracting investments from around the world. The emirate’s permissive cryptocurrency legislation attracts more players to the crypto market.

Residents of the UAE are aware of cryptocurrencies and use them for long-term investments. According to VIP|BTC, these factors make the region one of the most promising for crypto business.

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