Areije Al Shakar is the senior vice president at Bahrain Development Bank & director at Al Waha Venture Capital Fund of Funds

Banks and financial regulators in the Middle East have been slower to embrace cryptocurrency than Europe and the US. Before the pandemic, the Middle East’s crypto market was still in its infancy. But following two years of rapid developments, 2022 will be the year that the building excitement around the potential for cryptocurrency translates into industry leadership. 

Over the past 12 months, we have seen increasing signs that cryptocurrencies in the Middle East are evolving from a fledgling concept to an everyday part of life. 

Several cryptocurrency exchanges have emerged and raised funding, including BitOasis, CoinMENA and Yoshi Markets. One of the clearest indications that crypto is about to take flight is the news that came out of Bahrain recently regarding Rain, the region’s first Sharia-compliant cryptocurrency platform.

The exchange, which is backed by Al Waha partner funds VentureSouq and Middle East Venture Partners and 500 Startups, raised $110 million in a Series B round co-led by Kleiner Perkins and Paradigm, the largest crypto fund in the world. The round is one of the largest investment deals for any startup in the Middle East and North Africa and sets the tone for what is to come in the regional crypto market.

The GCC region, and Bahrain in particular, is already a leader in fintech. In fact, the sector is expanding at a compounded annual growth rate of 30 per cent. Flexible regulatory frameworks and rapid digital transformation combined with a strong appetite for innovation in the financial sector are among the factors contributing to the region’s emerging position as a fintech hub, where technologies such as open banking and cryptocurrency can thrive.

Cryptocurrency is receiving more investment and support from traditional entities in the Middle East financial market as countries accept and begin to promote the shift towards digital transactions. The regulations being implemented are conducive to the rise of crypto clusters, which could have a snowball effect on the uptake of digital currencies.

In the UAE, the government has established a special crypto zone at the Dubai World Trade Centre (DWTC), where cryptocurrencies and other virtual assets are regulated. FTX Exchange, one of the world’s largest exchanges was recently granted a licence to operate in the UAE while Binance also signed a deal to develop a new industry hub dedicated to digital innovation and cryptocurrency in the UAE. Bahrain’s central bank also approved the exchange, marking the first regulatory approval for a Binance entity within the Middle East. 

Saudi Arabia is also positioning itself as a future hub for up-and-coming cryptocurrencies amid a strategy to embrace digital transactions as part of its efforts to diversify the economy. The Saudi Central Bank (SAMA) announced last year that it will implement an open banking policy, spurring a wave of competition and increased transparency towards financial transactions data.

As a leader in financial services, Bahrain is at the forefront of the region’s impending crypto boom. The kingdom has secured access to European markets via CoinMENA, an onshore exchange granted a licence by the European Union. The licence paves the way for expansion to new jurisdictions and increases the number of crypto assets on the platform. CoinMENA has been the fastest growing cryptocurrency exchange in Mena, growing at an average rate of 140 per cent month-on-month.    

The Central Bank of Bahrain also launched FinHub 973, a first of its kind virtual fintech platform to allow companies to test their solutions through the Regulatory Sandbox and connect with the hub’s global network for funding and business opportunities. FinHub 973 is all about supporting innovation in the sector and is a good example of the driving forces behind the region’s shifting fintech landscape.

The evolving landscape of the Middle East’s fintech ecosystem signifies the willingness of governments, regulators and the private and public sectors to embrace and empower digital innovation. It is clear that countries are now recognising the value of cryptocurrency and how digital transactions will shape the way we exchange money and goods.

The increasing adoption of cryptocurrencies in the GCC is perhaps unsurprising given the various national visions and strategies that are designed to attract new business and support economic diversification amid increasing competition.

But it is clear from last year that the pace of change is accelerating. As the Middle East’s economic powerhouses increasingly adopt and nurture cryptocurrency over the next 12 months, we can expect to see the market coming of age and contributing significantly to the region’s overall growth and development.