Cryptocurrencies and the market surrounding these digital assets has been growing since it was first created in 2009. Certain countries have long since been a part of this burgeoning market, like asian markets in China, Korea and Japan, as well as many European and western countries. In 2017, the media coverage of these crypto markets exploded, with non stop financial coverage from popular investing programs as well as mainstream news programs.
This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.
Adoption in the Middle East
Although this technology has taken off worldwide, adoption in the Middle East thus far has been very lackluster. Even though there is billions in investment capital groups located in areas like Dubai or Saudi Arabia, it seems that Muslim communities worldwide were apprehensive about joining in this new sector. This absence is due to religious and societal concerns regarding the nature of these cryptocurrencies. This year seemed to mark a new change in attitude in the Middle East. There are many new developments on the way that show that the Middle East and worldwide Muslim communities are preparing to start adopting and building with this new technology.The Halal vs Haram Debate
The uncertainty of the status of cryptocurrencies has caused many in the muslim communities to steer away from them for most of the early days. The intangible nature of crypto has lead most leaders in major muslim communities to call crypto “haram” or harmful. To understand this conclusion we need to take an unbiased look at cryptocurrencies and the surrounding markets. Because of the immense volatility that is omnipresent in crypto, many leaders of the Muslim faith have considered crypto to be gambling, no different that Las Vegas casinos. The intangible properties also make it a speculative instrument, because it is not something that is physically real or backed by anything. If Bitcoin and other major cryptocurrencies were tied to physical commodities, as some stablecoins are, this principle could be refuted on some level. This would also tame the wild volatility of the market. This ruling on the status of cryptocurrency has left the Middle East on the sidelines as other major markets worldwide have started adopting this new technology. This all seemed to start changing in early 2018. In April of this year, the Turkish Directorate of Religious Affairs declared that buying and selling virtual currencies is not compatible with Shariah law, but it is acceptable to still use this as a payment network. This means to use cryptocurrencies as a speculative investment is prohibited, but to use this growing technology as a payment transfer network is acceptable. Bitcoin had a major rebound around this time, leaving many to suggest that this was due to the huge influx of new adopters in major muslim communities worldwide. Although it couldn’t be stated for certain if this recent ruling on the status of crypto was indeed the cause of the rebound, there are certainly huge leaps being made in the Middle East towards crypto adoption.Huge Markets in the Middle East
The interest in cryptocurrencies has certainly risen in the Middle East and major Muslim communities worldwide. There are reportedly 1.6 billion Muslims worldwide, making up a huge fraction of the population. Many experts believe that this part of the population can be a huge driving force in the potential of this new technology that rivals the asian communities like Japan and Korea. While there are numerous potential benefits for this new technology, there are particularly three sectors in the Middle East that could see the biggest improvement from adopting crypto.E-commerce Expansion
Cryptocurrencies are perfect for integration with online shopping and to replace older systems with numerous faults like Paypal. E-commerce will continue being a massive growing sector year after year, continuously replacing traditional brick and mortar venues. While many online transactions in the Middle East are utilizing cash on delivery types of exchanges, crypto can make this a truly trustless system with direct and irreversible transactions, meaning there cannot be any fraud or pullbacks. Unfortunately for crypto, many merchants throughout 2017 withdrew their support for major cryptocurrencies like Bitcoin. This was due the unforeseeable rise in transaction times and fees. Better payment networks need to be established with stablecoins and other alternatives.Banking Solutions
Many people in Arab regions are without any sort of banking account. Even without a bank account, many people have smart phones that can facilitate online use anywhere. This is the perfect opportunity for cryptocurrencies. Payment networks based on crypto are being made right now throughout the Middle East and worldwide that will allow for international and local exchanges.Financial Transfers
The Middle East is considered the largest market for incoming and outgoing financial transfers. Many people in these regions have family living abroad which send money back home, or the many asian workers here that send money back to their families. This is seemingly a perfect use case for crypto as it can supply low cost instant transactions to anyone in the world without a censoring party in-between.The Rise of Tangible Crypto Assets
Most cryptocurrency experts agree that crypto backed by real world assets is an absolute necessity for real world mass adoption. Investors might disagree with this proposition because it will help to tame the wild volatility that has made crypto valuable from a trading perspective. However, 2017 saw numerous merchants drop support for Bitcoin and others because of this volatility, so the evidence is there.Real World Assets Like Gold or Oil
The concept is that while most cryptocurrencies are only backed by their network and white papers, crypto that is backed by real world assets like gold or oil will be tied to a certain price as the volatility in gold for instance is much less that crypto in its current state. Most of these coins intend to be stablecoins, cryptocurrencies that are pegged to a certain dollar amount. The issuing parties that upkeep the network constrict the flow of these stablecoins to make sure it holds its dollar peg. These pose a much better alternative to Bitcoin and others for merchant adoption as the value of these tokens is reliable and the fee structure is consistent.Gold Backed Stablecoins
There are many up and coming cryptocurrencies that are backed by gold. This is because gold has historically proven to be the greatest store of value, regardless of the time period or nation that held it. Gold has much less volatility then other assets like stocks or currencies, and except in times of economic crisis, gold has remained very stable. Utilizing gold as a backing asset, these upcoming stablecoins will in theory remain very stable in price and be a better solution for worldwide merchant adoption. How can merchants trust using a currency that in one year multiplies in value by the thousands and in another year loses ninety percent of its value? It’s simply not feasible on any level and although many merchants see the potential of this technology to solve many issues, cryptocurrency is simply not ready in its current state.Cryptocurrencies Without Volatility
Stablecoins have all the functionality of traditional cryptocurrencies with none of the immense volatility that has plagued many top cryptocurrencies. Stablecoins are still able to be used to transact anywhere in the world, can still be used with online wallets, they are fast and cheap and cannot be censored. In basic premise, they are perfect for worldwide merchant adoption. Middle Eastern countries are no stranger to gold. The Middle East’s gold markets are some of the world’s oldest. In particular, Saudi Arabia, Dubai, Iran and Egypt are some of the biggest producers and market places for gold jewelry and the exchange of financial gold assets, like gold bars and coins. Gold is something permitted by Islamic law and gold backed cryptocurrencies will help more members of the islamic faith start to get into and understand cryptocurrencies, ultimately ushering in more worldwide adoption.Kinesis
Kinesis is a new stablecoin platform that will soon be one of the biggest competitors for all cryptocurrencies. The Kinesis platform will release several currencies backed by gold and silver reserves. The Kinesis currency KAU is backed on a 1 to 1 basis by grams of gold. The second currency KAG is similarly backed by silver reserves. Kinesis also plans to have several exchanges that cater to the minting process of these currencies, as well as a general altcoin exchange to be one of the main market places for their currencies. Minting will replace any sort of mining like traditional cryptocurrencies. With minting, you will in essence create your own crypto by depositing USD, other fiat currencies, or other main cryptocurrencies like Bitcoin and then turn them into KAU or KAG. These newly created cryptocurrencies will then be visible on the blockchain ledger. This provides transparency for all Kinesis users, ensuring that the number of KAU and KAG tokens never exceed the amount of gold and silver in reserves. Kinesis will be one of the biggest stablecoin leaders going into 2019.One Gram
One Gram is a Dubai based group that has issued their own cryptocurrency that they say is Sharia compliant. Each One Gram unit is backed by physical gold that they have stored in their vault reserves. The coins are listed on their own exchange called Huulk which provides cryptocurrency trading pairs with their tokens. One gram even has a team of Islamic advisors that help make sure they continuously stay within Sharia laws. One Gram does regular audits of their gold supply to make sure they continuously stay on par with the amount of tokens in the ecosystem. The audits are provided by PWC, a reputable financial service. One Gram sold over 400 million dollars worth of tokens in the last year.Hello Gold
Hello Gold is a Malaysia based mobile application that allows you to buy and sell gold. It is a simple platform that makes it easy to set buy and sell prices. The platform received approval from Islamic scholars at Kuala Lumpar based Amanie Advisors, meaning they are a fully Sharia law compliant organization. The chief marketing officer, Manuel Ho, the Hello Gold transactions occur within a defined period, making them less volatile and addressing the concerns of price slippage and volatility. Their ICO was launched in December 2017. The platform is geared towards those that want to purchased gold as an investment rather than those that are looking to trade cryptocurrencies.First Crypto Exchanges
With this growing wave of interest in the Middle East for cryptocurrency, there was bound to be new major crypto exchanges heading there before long. In 2019, there will be new platforms available to satisfy the new investor interest. With numerous countries in the Middle East and Muslim communities worldwide, there are plenty of new opportunities for financial groups to build their own exchanges. With the new interest in cryptocurrencies worldwide, there certainly will be someone looking to capitalize and provide this niche. Professionals and analysts that understand investing laws in these many diverse regions will certainly be needed and welcome for these new exchanges to be built.First Exchange in the Middle East
Rain Financial is full cryptocurrency exchange that is purported to be the first exchange in the Middle East to be licensed by a central bank. Their waiting list has recently opened after spending a year in the fintech sandbox of the Central Bank of Bahrain as they tested all the features for the open market. The team that put together Rain is a well experienced team of crypto veterans like Saudi blockchain consultant Abdullah Almoaiqrl and the Egyptian Investor Yehia Badawy. Rain has plans to offer both an institutional platform as well as a full brokerage service for retail crypto investors in the region. The exchange has stated that they feel that crypto adoption in areas like Iran and Egypt have been remarkably slow in comparison to countries like Turkey and Israel. Regardless, they say the demand is there and growing every month. They have compared interest in cryptocurrencies to other universal assets like precious metals and feel that the Middle East will be a massive portion of global sales in all crypto asset categories.Middle Eastern Countries Are Waiting
The new exchange blames the regulatory landscape for the current lack of big transaction volume in crypto, citing cryptocurrencies like Bitcoin’s shadowy reputation as an anonymous currency of illegal activities. It seems the residents of these Middle Eastern countries are waiting for the full green light from regulators before they dive into this new financial sector.First Islamic Crypto Exchange
The United Arab Emirates based financial group ADAB has recently announced their own plans to open a crypto exchange in the Middle East. The platform will be called “First Islamic Crypto Exchange” or FICE and is being called the first fully Sharia-compliant crypto exchange. On that note, the platform also has its own sect of the Sharia Advisory Board, an expert group that will make sure all matters of conduct are compatible with Shariah laws and principles. This new exchange will help the local regions primarily but will also be open globally for exchange services. The expected turnover monthly is an immense 4 billion. Whether or not these goals will be met is up to question, but it shows the team behind FICE certainly is looking to be a big player on the international crypto exchange scene. The financial group ADAB even has plans to offer its own cryptocurrency called the ADAB token. The token reportedly will be used to “pay for commission and services within the project.”Major Cryptos Are Building Payment Networks
Cryptocurrency experts have looked at the Middle East as the perfect region for crypto integration. The interest and use cases present in this area have attracted attention from major crypto businesses for several years now. Payments in and out of countries like Dubai or Saudi Arabia are a prime example. These countries have numerous foreign migrant workers who send payments back and forth as well as the billions they do every month in foreign business. Setting up crypto payment channels would not be a simple feat, but it is a goal set out by competitors Ripple XRP and Stellar XLM. These two organizations have a long standing rivalry and now seem to be fighting to set up these payment channels in the Middle East first.Payment Systems in the Middle East
Ripple is a real time payment settlement system and remittance network. Widely renowned as being the leader in crypto payment networks, it seems as though this would be the perfect candidate for setting up payment systems in the Middle East. Banks worldwide are currently testing the Ripple network to shift money between countries and settle these transactions at a lighting fast pace. Currently, the system Swift has been performing this function for years, but many banks are looking for a replacement as Swift is dated, cumbersome and restricted. Currently, Ripple claims to have hundreds of banks in its payment network worldwide. Recently big news from the Ripple group broke worldwide. The first commercial bank of Kuwait, the Kuwait Finance House has stated they are using Ripple’s technology in numerous tests and applications including instant cross-border payments and settlements. After these extensive tests were complete and results were proven to be very effective, Kuwait Finance House has even announced they are joining the Ripple payment network known as RippleNet. This is a huge step for the Ripple Foundation in becoming a big player in the Middle East. With the partnership with Kuwait Finance House, Ripple will have a well established and reputable partner in the Middle East for their expansion efforts. This will certainly become an important milestone for the Ripple Foundation.Stellar leads Adoption in the Middle East
Stellar is the main competitor in the same market share that Ripple hopes to take over. These two organizations have a long standing and competitive history, including major crypto figures that have worked on both projects. While Ripple was established first, Stellar has some features that separate it apart from the competition. When it comes to adoption in the Middle East, Stellar seems to have leapt over Ripple in one respect. In July 2018, Stellar announced to the crypto world that they have received a full Sharia compliance certification, marking them as the first ever Sharia law compatible cryptocurrency. This certification specifically applies to the field Stellar is trying to gain traction in, money transfers and asset tokenization. With this new certification, Stellar surely will have a big aid in building its payment network and crypto ecosystem in areas where compliance with Sharia law is a necessity. Many regions in the Middle East are now open to this crypto network and the financial infrastructure it is laying out. Many banks and financial groups offer Sharia-compliant products that Stellar can now be a part of.Adoption Is Spreading
The cryptocurrency markets have seen numerous ups and downs throughout the past few years. Global adoption will be no easy task, but every disruptive and ground breaking technology follows a similar path of resistance before it eventually takes over. Major markets across the globe from China to Dubai are warming up to crypto integration and the power of this ledger blockchain technology. After nearly a decade of uncertainty the Middle East seems to finally accept cryptocurrencies as both a new financial instrument and as payment network technology that can enhance every area of finance. With 1.6 billion muslims across the world, this new group of investors could potentially be a huge driving force in the future. We’ve seen the levels of crypto mania in countries like Japan and Korean and the Middle East could rival that. Countries like Dubai and Saudi Arabia are known for their gold and oil investments and crypto could be an asset class that compliments that massive commodity portfolio.Kinesis Appeals to Middle Eastern Investors
Gold backed crypto currencies like Kinesis will be the first in these areas as both a new investment class and as a currency of e-commerce and merchants. Kinesis appeals to the Middle Eastern investors that are already well familiar with gold products, as well as merchants that can adopt Kinesis for payment solutions. With new infrastructure being laid worldwide, we might finally be closer to an instant worldwide network for everyone to use. While currently being restricted to using banks for international transfers, with cryptocurrency and blockchain we are quickly approaching a new era of global transactions.This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.
