The UAE’s Crypto Ambitions Post-FTX

a residence in Dubai. It's also where Suzu and Kyle Davis, the co founders of the crypto hedge fund Three Arrows Capital, have most recently set up shop, and Sam Bankman freed, of course, travel to Dubai from meetings with investors just

weeks before the collapse of FTX. Fd X, incidentally was one of the very first firms to be granted a license to operate in the region by Zubai's regulators for virtual assets, and around four per cent of FDx is global customers were based in the u A, according to court filings in that bankruptcy case that makes the UA one of the top ten jurisdictions affected by the FTX fallout. Overall,

a pretty mixed picture. For more on the crypto ambitions of the u a E, I'm joined today by Bloomberg proposes suba stry Bush the way is coming to this party and really warming up to to these investors and Ben Bartonstein. When you talk to authorities here, they describe how they want to be at the cutting edge. They want to capitalize on the fact that a lot of companies are you know, find the u a AT an attractive home to to set up and they want to

keep those those companies here. Suva, Ben, Welcome to the podcast. Ben. Why don't we start with you. You're one of our Dubai based report is. What's it been like getting kind of pulled into the crypto story for the past couple of years. Yeah, it's been a real education for me.

It's not something I knew too much about a little over a year ago, but as a lot of the key players in the industry have either moved here or spent part part of their time here, it's been a real education getting to know a new industry and see how it's evolved. Quite significantly in a short time horizon.

The crypto story really picked up in that's when Abudabi Global Market, which is a hub for a lot of the multinationals in the capital city Abu Dhabi, a d g M as it's called, established its own Virtual Assets Regulatory Authority framework, considering itself one of the sort of one of the early adopters in that space, and it really sort of accelerated in of course, COVID hit the world.

There was the lockdown, but the UAE really emerged from lockdown a lot more quickly than than the average country with a very quick vaccination rollout, and really as other sort of multinational hubs such as Hong Kong and Singapore we're still in lockdown, a lot of sort of fintech entrepreneurs started moving to this city. So this kind of accelerated efforts by authorities to try to recruit a lot

of talent, especially in the fintech crypto space. Right one of the biggest names that you know, the UAE and DUBAIS specifically has been able to attract at least as a resident, if not necessarily somebody who has a business headquarters. There is of course c Z the CEO of Finance, which is the world's largest exchange. Can you talk more about the perception of finance in the region. Why CZ is there, what rule are Dubai and the UE hoping

that someone with such a high profile can play. CZ actually relocated to Dubai late two thousand twenty one, you know, and that was because he failed to get a license from the Singapore authorities. And before that he was in

Hong Kong. So he has been shifting his space quite a bit after you know, China crackdown and banned all of crypto and then, as he said, he relocated to Dubai and he's got a home there and he is the front runner for all of crypto world really, right, and when the so called king you know, lands in a region which is relatively more friendlier than other regions, other countries, then he could say that the entire ecosystem

also really warms up. And that is what we saw after c Z moved to Dubai and shifted his base, and he's hired hundreds of people in his so called headquarters in Dubai where is set up his office. So yes, the CZ moving has actually encouraged a lot of development in Dubai as well as in the in the U

region per se on the crypto industry. So that's very interesting contracts, right because Ben, as you know, one of the pieces of reporting that you, of course have been doing very consistently for several months is this shall we say, symbiotic relationship between the regulators and the regulatory framework in the u E and those efforts to attract not just

crypto but also fintech entrepreneurs, companies and businesses more broadly. So, what are some of the big regulatory priorities for the UE given that they've had success with finance so far, but they also gave a license to fd X, which

you know, collapse to not super long after that happened. Certainly, when it comes to the broader economic strategy within the U a E, the U as home to six percent of the world, has proven oil reserves, but they're thinking ahead, you know, decades into the future, how can we diverse fire economy And they're talking a lot about the digital economy and how crypto is a key pillar in that strategy. So I think when you talk to authorities here, they describe how they want to be at the cutting edge.

They want to capitalize on the fact that a lot of companies are you know, find a U at an attractive home to to set up, and they want to keep those those companies here. Of course, in the past six months, some of the authorities have been quite unsettled with what's transpired in the industry. A lot of development since the stunning collapse of former billionaire Sam Bankman freed

ft X Empire last week one of the two. But certainly when you talk to certain UI officials, they recognized there will be some failures, but they'd rather you know, strike out a few times but still be right in the thicker things than let this opportunity pass them by and and let some other place sort of capture more of the market share in this industry. It's interesting to hear you describe it like that, because that sounds kind of more like how venture capitalists think and not so

much regulators in a lot of ways. But Suva, I want to come back to you in this point because it seems like what's developing here is regulatory arbitrage, which you alluded to a bit in talking about the challenges that CZ has faced in trying to secure those operational licenses for finance, So where are those folks who And to be clear, this is not a crypto didn't invent

regular story, I b rage. Financial services companies and people who work in financial services are very good and identifying jurisdictions that let them do what they want to do or give them amenable terms to do so. But what has been the response of other countries, other cities, other states who might be looking at the relative success that Dubai in the UA, you're having an attracting business flows, attention, marketing, hype.

These other places are looking inward and are they saying, well, do we need to change our own approach as a regulator in order to compete? There has been a lot of regulatory arbitrage and like like we've seen that how Singpore has tightened their rules. Yes, we still want to be a crypto hub, but if you mean whether we want to be a hub for the trading of cryptocurrencies, no,

that's not part of the vision. We did not state it so emphatically before, but now we are stating it much more rophatically than almost proposed to make it impossible for retail investors to trade in crypto in the same way, you know, you've seen some other countries as like Thailand doing the same thing. However, Hong Kong is again, you know, trying to establish themselves as a crypto hub in Asia. It shows that there is a lot of differences in

the approach that regulator stay. That is also helping to some extent for some crypto natives and crypto investors to understand where to go and when not to go. And yes, Dubai, as you were saying in the beginning and was Ben Ben was also saying that you know that they are trying to kind of warm up to this new wave of so called capitalism if I can say, or or the wealth creation or whatever. Like, you know, Dubai is coming to this party and really warming up to to

these investors because these are deep pocketed investors. You can get rich fast. It's a way of making money and without much regulations. We'll be right back after the break with more from Suber and Ben on the UEA S future in crypto. We still have to address one of the biggest criticisms here, is this really the best moment

to be chill about crypto regulations? As you know, it felt like on a weekly and in some cases hourly basis from the second half of two that we were reporting on folks filing for bankruptcy or just generally collapsing or halting withdrawals or being incredibly accused of various types of you know, bad things. And at the center of all this has been a real concern that retail investors

have not really had a lot of recourse. Ben one of the stories that he reported on was on that kind of tension, like how to balance the need to not stymy innovation, to continue to encourage people who want to come and take risks and try new things, but also to protect the investors in those companies as well as the retail investors who put their money and their

trust in those companies. And one of the things that been you identified in your reporting, and this comes from bankruptcy documents, is that the UAE had a not small number of investors with money locked up in f t X. They were at least one of the top ten or twenty jurisdictions in terms of creditors to f t X. So from their own perspective, it seems like they have a real interest in getting this right at least the

next time. I guess i'd be curious, um what the sort of nationality breakdown is there, because I guess the interesting and somewhat unique thing about the use the fact

that about of the population is non Emirati. So when I talked to officials here about consumer protection in the context of crypto, it's not something that they dismissed, but it's not at the top of the priority list, And I guess it makes you wonder how the demographics within the country perhaps factor into that a bit, because the general line that I hear when talking to Emirati officials about this is they don't want to have too much

government intervention and preventing retail investors from an insting in something. Perhaps it's quite risky, but they say that's you know, buyer beware. We don't want to be stepping in the middle of things. Of course, if if Amarati locals are burned by particular investment, that's when the government takes a much greater interest in trying to crack down and understand what exactly went wrong. There's the fact that this is a hub for lots of people, for lots of different places.

In addition to that, you have local family offices for example, or other types of entities that might have different types of risk considerations like fintech or energy or real estate.

But have you found that crypto is making real in roads into that local Emirati population as well as that broader base of folks from multinationals who are attracted to the u E. Absolutely, Although the Amiati nationals make up the minority of the population, it is a quite youthful population, a lot of folks who are early adopters in the

crypto space. What you'll see is some of the more senior decision makers within the u a E. Their children, their nieces, their nephews, got into crypto at a quite an early stage and have since convinced, you know, their parents or uncles or aunts, Hey, this is where we need to put the family money. So yeah, again, even if you know ten percent the population here is Amati, you know there is probably a greater share of their net worth that's in crypto on a percentage basis than

probably the majority of countries in the world. And then going back to boom and bus cycles, the UA has seen some pretty intense examples of this. The vibe in was not fun. There was a lot of distress, There was a lot of concern that things had gotten too frothy, too fast, and that the shakeout was going to be really intense, and frankly it was for a while now.

For someone who has not necessarily been paying attention to all financial markets for the past, you know, fifteen or twenty years, things now might seem completely chill and totally fine. So have folks learned any lessons from previous market cycles? Certainly that there have been some changes in the real estate sector for one. But I guess the other thing that's really changed since the O eight crisis when it comes to the U a E is just the the

size and heft of the wealth funds. In Abu Dhabi in particular, you sort of have these two counterweights as far as attracting people to the U a E. You have Dubai's the hub for multinationals and the glitz and glamour appealing to a lot of the sort of crypto set. But then Abu Dhabi has really, I think one of the bigger global stories right now is become sort of a funder of last resort for a lot of companies.

Those two kind of go hand in hand, and at least for right now, keeping a lot of attention on the u a E and a lot of traffic into the country. But certainly, as you alluded to, the booms and the bus have both probably been felt a bit harder in the UAE than than elsewhere. It's it's a real roller coaster, so there is concern when you talk to bankers, when you talk to the lawyers and others in the financial industry about when the hard times may come back. And on that cherry note, thank you both

for joining the podcast. I appreciate you taking the time. You can find more of their reporting on the Bloomberg terminal and on Bloomberg dot com, and of course check out our twice weekly newsletter, which is called you Guessed It Bloomberg Crypto. This is Bloomberg Crypto at daily podcast from Bloomberg and I Heart Radio. For more shows from I heeart Radio, visit the I Heart Radio app, Apple Podcasts,

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