Digital asset trading is gradually becoming more entrenched in the Middle East region, as users increasingly chase returns and seek out risk diversification.
Coming off the latest Network Forum (TNF) event in Doha, Ripple takes a look at some of the big digital asset trends happening in the Middle East right now.
1. The Middle East is catching up quickly on digital assets
While volatile markets and simmering geopolitical tensions in the Middle East are prompting the region’s users to build up exposures to new asset classes, including cryptocurrencies, more positive drivers are also taking shape. Proactive regulators have taken steps to enable digital asset growth in the region, particularly in the Gulf Cooperation Council (GCC) where volatility plays less of a role.
According to Chainanalysis data, the Middle East is ranked as the seventh largest cryptocurrency market in the world, with an estimated $338.7 billion in onchain value received between July 2023 and June 2024, accounting for 7.5% of the world’s total transaction volumes.
While the Middle East is still one of the smallest cryptocurrency markets in the world– ahead of only Sub-Saharan Africa – it does include two countries which are in the top 30 global crypto index, namely Turkey (11th) and Morocco (27th). And the majority of crypto trading in 2024 was institutional-led, with 93% of transactions involving sums of more than $10,000.
“Institutions are adopting cryptocurrencies much more than what they were. Seven or so years ago, I had conversations with large financial institutions who became very uncomfortable when the words ‘crypto’, ‘blockchain’ or ‘digital assets’ were even mentioned. Now, this is no longer the case and firms seem to be more at ease with these technologies,” said Reece Merrick, Ripple’s Managing Director of the Middle East and Africa.
With some of the leading global financial institutions like BlackRock now embracing cryptocurrencies, Merrick anticipates more institutional adoption in the Middle East will follow suit.
End-user purchasing in cryptocurrencies is also likely to grow in the region. This is partly because a number of Middle East markets are endowed with young populations, and it is precisely this demographic which is most open to cryptocurrencies.
For instance, a study by Bank of America revealed that 28% of wealthy US users aged between 21 and 43 saw cryptocurrencies as being one of the best growth opportunities, whereas just 14% said the same thing about US stocks. Expect young people to continue piling into cryptocurrencies both in the Middle East and globally.
2. Stablecoins are gaining the upper hand in the Middle East
Appetite for stablecoins in the Middle East is accelerating, with Turkey, Saudi Arabia and the United Arab Emirates (UAE) leading the way. In some markets, stablecoins are seen as a safer store of value than the local currencies themselves.
“In Turkey, purchases of stablecoins account for over 4% of Gross Domestic Product (GDP), which is more than any other economy. Although markets have calmed in Turkey and inflation is being reined in, there has been a lot of historic volatility with inflation reaching 67% last year, while the Lira suffered significant depreciation against the US Dollar. As a result, people are looking for alternative asset classes like stablecoins to safeguard their wealth,” said Merrick. “That being said, it is also encouraging that Turkish regulators have taken steps by amending the capital markets law to better regulate digital assets.”
Longer-term, experts believe assets like stablecoins could help improve settlement efficiency in the Middle East and beyond.
“A number of the currencies in the GCC markets are pegged 1:1 to the US Dollar. To speed up transactions, it is possible that some regions will adopt a stablecoin that is pegged either to the local currency or US Dollar. This will help accelerate the movement of cash and securities, enabling markets to go straight to instant settlement from T+2 or T+1,” continued Merrick.
3. The UAE leads the way in digital asset regulation
While some leading markets have delayed introducing crypto asset regulation, the Middle East, and more specifically the UAE, is racing ahead.
“The UAE is certainly more advanced in terms of implementing crypto regulation than any of the other regional markets,” said Merrick.
Dubai, for instance, has established a regulatory body, the Virtual Assets Regulatory Authority (VARA), which is responsible for supervising all activities relating to crypto assets in the jurisdiction. Under this regime, virtual asset service providers (VASPs), including crypto custodians, must be licensed by VARA and meet basic requirements around capital adequacy, anti-money laundering (AML) and counter-terrorist financing, governance, and customer due diligence.
More recently, the Dubai Financial Services Authority (DFSA) updated its crypto token regime within the Dubai International Finance Centre (DIFC), giving greater clarity to funds and custodians operating in this segment.
In Abu Dhabi Global Market, the neighboring City state’s financial centre, any financial services activities involving digital assets, including trading and custody, requires a license from the regulator.
More recently, the UAE’s Central Bank updated its crypto regulations so that businesses can now accept Dirham-backed stablecoins for goods and services, a decision which is likely to further catalyze stablecoin adoption in the country.
Other markets in the region are catching up with the UAE. Qatar Financial Centre (QFC) unveiled its own digital asset regulatory framework in October 2024, which among other things recognises the concept of tokenisation and highlights the role of token service providers. Market-specific frameworks like these are likely to jumpstart a domino effect across the region, with more countries introducing their own digital asset regulations.
As more markets in the Middle East create crypto regulatory frameworks, institutions will become increasingly comfortable with the asset class.
4. Digital asset service providers up the ante
As institutional clients start dabbling in cryptocurrencies, incumbent providers such as global custodian banks will have to adapt—and many appear to be doing so.
During a poll at TNF, 63% of organisations said they have live projects underway involving digital assets (and distributed ledger technology [DLT]), while a further 26% are in the proof of concepts (POC) stages of development.
For example, a number of providers have developed their own in-house crypto custody solutions, or have acquired equity stakes in third party crypto custodians or fintechs. “The industry is making a lot of progress here, and this is reflective of the excellent work being done in the region by Central Banks and regulators alike,” noted Merrick.
For many traditional banks, moving into the digital custody space is not without its challenges. Traditional banks want to launch digital asset custody platforms, but don’t necessarily want to rip and replace existing legacy technology systems.
This is where strategic partnership with infrastructure technology providers come into play. Although some banks may choose to build their digital asset technology stacks internally, others are leveraging the expertise of external providers such as Ripple. Ripple Custody is the institutional standard for digital asset custody and tokenisation infrastructure, and is used by some of the world’s largest global custodians to establish digital asset custody platforms.
Interested in learning more? Contact our sales team today to access the digital asset economy.
