Why crypto foundations should be robust, clear
The cryptocurrency market is currently enjoying a resurgence thanks to a number of factors that has magnified its potential value. Increased interest in these alternative assets, as some quarters call it, is also being felt in the region, especially in the UAE.
Investors, naturally, will look to trustworthy organisations that would help them reap the potentially-huge benefits that await - and this has to start with a robust and clear-cut regulatory backbone.
"The more regulation and more transparency that a regulated framework will provide certainly should give clients of a regulated exchange comfort that there is a third-party regulator that is regulating the crypto asset activities," Leon Smith, CEO and founder of Digital Assets Exchange (DEX), told Khaleej Times during an interview in Dubai on Thursday.
"We see that the regulatory framework that's been put into place by the FSRA in ADGM is a robust framework that clearly identifies crypto assets as a unique asset class and provides a strong foundation for a regulated exchange to operate within."
Bitcoin - the first, most popular and dominating force in the crypto spehere - has been notorious for its volatility. However, it has, along with other peers, experienced a resurgence as of late, apparently emerging as a safe-haven asset in these times of market uncertainty and geopolitical tensions, most notably caused by the trade war between the United States and China, which has had a domino effect on economic chains around the world.
From its humble beginning opening price of $135.30 in 2013, it touched an all-time high of $20,089 on December 17, 2017. Since then, it has wobbled, even teetered on the brink of going below the $3,000 mark late last year. As at this writing, Bitcoin was around the $9,500 level.
This volatility has indeed put off a certain number of individuals and organisations. However, the advancement in strict regulations and beefed-up digital security have not only allowed bulls to stick to their crypto guns, but also attract more people to have a better look at the market.
There is also a marked increase in interest in the region, especially in the local scene. "Within the UAE and the GCC, we certainly see an interest in crypto and digital assets," Smith said.
Trading volumes for crypto assets have increased year-on-year since their inception. As at Thursday, their total current market cap is over $246 billion, according to CoinMarketCap data.
The marked increase in trading activity on crypto markets as of late may indicate that there is institutional participation. One could infer that if trading activity has increased, it could potentially be due to institutional participation in the market. The short and medium term could see increased market participation of institutional stakeholders and acting as a regulated exchange for market participants therein.
DEX secured an in-principle approval from the Financial Services Regulatory Authority (FSRA) at Abu Dhabi Global Market (ADGM) in May, a "significant milestone", as Smith terms it.
"We are excited to be a part of the UAE's financial growth. It's exciting to be a part of a regulatory landscape that will help shape the international digital asset exchange ecosystem and encourage institutional participation in digital assets as an alternative asset class," he said in a statement.
ADGM in May last year announced the release of its framework for the regulation of crypto assets through the FSRA, following a successful completion of a public consultation on the introduction of a "robust" regulatory framework.
"The framework is designed to address the full range of risks associated with crypto asset activities, including risks relating to money laundering and financial crime, consumer protection, technology governance, custody and exchange operations. This new framework is one of ADGM's many efforts and ongoing commitment to bolster the economic diversification of Abu Dhabi through innovation and sustainable initiatives," it said at that time.
DEX - guaranteed to be a highly-regulated exchange - says the FSRA and ADGM have provided "clarity and reassurance" that "provides direction on how crypto assets and digital securities are regulated".
Smith stressed that they are expecting full FSRA approval in the second half of 2019; the exchange's operations, then, would start towards the end of the year. DEX expects to provide full operational trading services to clients not just in the UAE, but also to those in the wider GCC and even globally.
He added that would-be investors can bank on DEX's security protocols once it goes live, as it will have "equivalent measures to be deployed" in step with the highest standards.