In 2022 Dubai made a rapid entrance into the Gulf crypto market but until recently it’s been Bahrain that was topping the news about crypto in the Gulf. Dubai is a newcomer, while Bahrain is the real leader of the market.
Bahrain, a tiny Gulf nation located off the eastern coast of Saudi Arabia, was the first to embrace crypto in the MENA region.
What makes it so unique and successful? The answer is quite simple – Bahrain was the first to introduce a regulatory framework that established rules for crypto – a new game that nobody actually knows how to play yet.
Since the 2010s, the Gulf states have been actively carving a path toward economic diversification, and new technologies are at the heart of their strategies. Various national visions were designed to attract new business and create space for new industries.
We want to be at the forefront of the Fourth Industrial Revolution. We missed the first and second. When the third revolution took place and we saw the emergence of Silicon Valley, we were too busy making money from oil,
says David Parker, co-chief investment officer at the Bahrain Economic Development Board (BEDB).
Faced with the crushing pressure to create a sustainable future for the next generations after the end of the oil age, the Gulf states are looking toward fintech and blockchain as a new source of income. The key notion here is collaboration – between the regulators and the entrepreneurs. Regulation is the key to Bahrain’s success.
Open and innovative regulation entices global companies to set their bases in the kingdom and local talents to start new businesses at home. Consider just the recent news. On Tuesday, bitcoin payment processor and cryptocurrency infrastructure provider OpenNode announced that it will test a bitcoin payment processing and payouts solution via the Central Bank of Bahrain’s (CBB) regulatory sandbox.
This sandbox gave birth to many thriving companies and innovative solutions. It allows fintech firms to test and experiment their ideas and solutions related to the sector in an efficient and effective environment. The sandbox was launched in July 2017 to allow entities or firms which are not yet licensed by the CBB to test new ideas and solutions which are yet to be fully developed.
Later that year, in October, Bahrain’s Economic Development Board endorsed blockchain, approving over 28 blockchain companies. Commenting on this move, Bahrain’s Minister for Electricity and Water Affairs Dr. Abdulhussain Mirza said:
Technologies such as blockchain take us a huge step forward in finding a secure way to facilitate transactions. He urged the FinTech community in Bahrain to embrace the government’s initiative with blockchain technology, saying that it will pave the way for quality innovations among the “great minds of the community.
To gather all the “great minds” together in February 2018, the kingdom established Bahrain FinTech Bay, which bills itself as a one-stop-shop for fledgling fintech companies. Currently, this is one of the biggest fintech hub in the Middle East and African region, already attracting more than 50 partners from local and international organizations.
Then in February 2019, after long public discussions the Central Bank of Bahrain (“CBB”) issued the final rules on a range of activities relevant to crypto assets, which provided potential CAX platforms with all the necessary regulations to set up and run their operations in the kingdom. The rules provide a comprehensive framework for the industry, covering all areas of activity ranging from licensing, governance, minimum capital to risk management, AML/CFT, standards of business conduct, avoidance of conflicts of interest, reporting, and cyber security for crypto asset services.
This brought the long-awaited clarity to the previously unregulated crypto market. As any game, which the financial market also is, crypto requires clear rules for consumers to feel safe. According to A. J. Nelson, one of the founders of Rain, the biggest crypto trading platform in the Gulf, the cryptocurrency space requires regulation to reach mass adoption.
This regulatory framework sparked a boom in the Bahraini crypto market with two biggest Gulf trading platforms emerging in the country.
Rain became the first licensed crypto asset platform in the region when it secured approval from the kingdom’s central bank to operate in 2019. Founded by Abdullah Almoaiqel, AJ Nelson, Joseph Dallago, and Yehia Badawy in 2017, Rain graduated from the Sandbox in 2019 to become the region’s first fully licensed cryptocurrency brokerage. It adopted an aggressive expansion strategy currently covering all the GCC countries with trade volumes having exceed $1 billion in the first half of 2021.
Later came the global players. In December 2021, Binance Bahrain was the first exchange to be granted a category 4 license, which allows the company to operate a licensed crypto asset exchange as well as a crypto asset custody service.
I am grateful for the support from the Central Bank of Bahrain and the broader Bahraini ecosystem during the process,
Zhao said at that time.
The Key to Success
Jurisdictions such as Bahrain that offer some regulatory protection or licenses will reap enormous gains, as the digital asset sector continues on its path toward maturity, believes Boris Bohrer-Bilowitzki, head of sales at Copper, a cryptocurrency custody firm.
After the adoption of the crypto rules, Bahrain did not stop and continued to set trends in the crypto asset regulation in MENA. Back in 2019 Khalid Hamad, Executive Director – Banking Supervision, said the new framework was only the first step towards designing a comprehensive set of rules:
The CBB its goal to develop a comprehensive rules for the FinTech eco-system supporting Bahrain’s position as a leading financial hub in the MENA region.
Bahrain went even further and in 2021 introduced a new type of licenses for crypto exchanges – the shariah compliant crypto exchanges, with CoinMENA, another Bahraini startup, becoming the first company to acquire such.
Dubai Enters the Game
This year, all the big news in crypto came from the UAE, rather than Bahrain, with Dubai adopting a law to regulate virtual assets in early March. The law also established The Virtual Assets Regulatory Authority (VARA) which is tasked with regulating the principles of service and activity management in the virtual asset sector.
Crypto exchanges from all over the world then flocked to Dubai quickly establishing their regional headquarters there, with Binance being one of the first. Zhao even called Dubai the Wall Street of crypto.
Now, it’s Bahrain’s turn to take a step.