A quick look at the current state of cryptocurrency adoption in the Middle East and North Africa

Author: Chainalysis Compiled by: Luffy, Foresight News

The Middle East and North Africa is the sixth largest crypto economy we studied this year (2023 Cryptocurrency Geography Report). Between July 2022 and June 2023, the value of on-chain transactions in the region was approximately $389.8 billion, accounting for nearly 7.2% of global transaction volume.

The Middle East and North Africa region occupies three of the top 30 countries in this year's index: Turkey (12th), Morocco (20th) and Iran (28th). Among them, Turkey dominates in terms of transaction volume, as shown below.

Overall, the MENA region’s deal volumes are similar to other regions, broken down by deal size and platform type.

However, we see significant differences between countries in the region. Consider the heat map below, which compares last year’s activity in some of the top crypto economies in the MENA region by platform type.

The most prominent is the United Arab Emirates. The UAE has a much higher proportion of crypto activity on DeFi compared to its regional neighbors except Israel. One reason could be that the UAE has transformed itself into the world’s cryptocurrency hub by passing a regulatory framework that is conducive to innovation, allowing groundbreaking crypto platforms to better develop. These regulatory frameworks have attracted many cryptocurrency entrepreneurs and enthusiasts to the region, which may be the reason why DeFi is seeing more adoption there.

On the other hand, cryptocurrency activity in Turkey is more concentrated on centralized exchanges, as its users appear to be more focused on acquiring cryptocurrencies to combat currency devaluation. We’ll explore these trends and more below.

United Arab Emirates (UAE): How Forward-Looking Regulators Shape a Global Cryptocurrency Hub

Due to its unique innovation-friendly regulatory policies, the UAE attracts top financiers, young technology entrepreneurs and innovative companies from around the world. The UAE is also a leader in adopting advanced technologies to help increase business efficiency and improve the quality of life of its citizens, and the same goes for blockchain technology.

UAE regulators have been paying attention to cryptocurrencies for a long time, with the country’s most populous city, Dubai, first launching a blockchain strategy in 2016. Since then, UAE regulators have been at the forefront of the industry. In 2018, Abu Dhabi established the world's first cryptocurrency regulatory framework with the goal of establishing a forward-looking cryptocurrency regulatory framework that promotes innovation while protecting consumers and ensuring the UAE is a leader in the cryptocurrency space. Dubai established its own Virtual Asset Regulatory Authority (A) in 2022 to pursue similar goals. Earlier this year, the UAE passed further crypto regulations at the federal level, giving local regulators such as A the flexibility to regulate and maintain economic free zones to attract cryptocurrency innovation.

We spoke to Akos Erzse to learn more about how regulators such as A are creating a vibrant environment for cryptocurrency businesses to operate in the UAE. Erzse is senior manager of public policy at BitOasis, a Dubai-based cryptocurrency trading platform. He praised A's comprehensive regulatory framework released in February 2023, "A has brought new impetus to the region's forward-looking regulatory clarity, attracting a large number of cryptocurrency players to the UAE." He said that what differentiates Framework A from other frameworks around the world is the specificity with which it handles different types of virtual asset services and activities. “There are different rules for pledges, brokers, advisory services, custodians – which makes it easier for companies to understand the specific regulatory requirements for providing certain services.” A is committed to ensuring that the rules meet industry needs, Erzse cited A’s recent An example of this is an amendment that now allows custodians to pledge custody assets. "This responsiveness allows us and businesses like ours to innovate quickly."

Erzse said the UAE’s unique and dynamically evolving framework is particularly important at a time when regulatory momentum is building in other parts of the world. “There is ongoing regulatory competition between markets seeking to establish themselves as cryptocurrency hubs, while smaller markets are also developing rapidly.” The UAE’s regulatory approach allows it to attract global businesses and cryptocurrency entrepreneurs, as well as those looking to Regulated platform for high net worth individuals investing in cryptocurrencies.

When asked about the future of cryptocurrencies in the UAE, Erzse expressed excitement about innovative business models such as tokenization of assets. TOKO, a crypto platform focused on tokenization, recently received a license from A to provide such services in the UAE.

He also noted that remittances are an important use case for cryptocurrencies in the UAE and the wider region. "We are a remittance hub and people are definitely already using cryptocurrencies to send money home, but it would be exciting to see some dedicated products emerging within the existing regulatory framework." In fact, India, the Philippines and Pakistan are in our adoption index Both ranked in the top ten, which also bodes well for the UAE. These countries account for a large portion of the expat population in the UAE, and the surge in cryptocurrency popularity in these countries may also be related to the increase in cryptocurrency adoption in the UAE.

Rising inflation in Türkiye drives cryptocurrency adoption

In addition to ranking 12th in our Global Cryptocurrency Adoption Index, Turkey ranks fourth globally in terms of cryptocurrency trading volume (accepting approximately $170 billion in transfers last year), behind the United States, India, and the United Kingdom.

Yasin Oral, CEO and founder of Turkish cryptocurrency exchange Paribu, noted that Turkey’s relatively high cryptocurrency adoption rate is not surprising due to several reasons, such as the country’s recent macroeconomic environment and its young population. Interest in innovation and technology. He explained: “The world has had a difficult year due to tightening monetary policies, and Turkey has also been affected. Under such circumstances, individuals tend to seek alternatives such as cryptocurrencies to store value and diversify their investment portfolios. ization. Related to this behavior is that as each market cycle attracts new investors and adopters, more individuals and entities understand the benefits of blockchain, ultimately leading to increased levels of cryptocurrency adoption.”

In fact, Turkey has been facing rising inflation, with the inflation rate approaching 60% in August 2023. Additionally, the Turkish lira plummeted in 2021 after the Turkish central bank cut interest rates by 100 basis points. The lira has not recovered since then - in fact, it hit an all-time low in mid-2023. We can see evidence of Turkey’s currency depreciation driving interest in cryptocurrencies in the chart below. Starting around March 30, there was a big buying spike. Analysts say the lira's value will fall sharply no matter who wins the country's May election, at a time when the currency is already weakening. After a sustained decline, USDT buying picked up again in late July, shortly after the lira hit a new low of $0.04 and people awaited the central bank interest rate announcement. Keep in mind that we use the 30-day average of lira purchase UDST data as the display data, which will be slightly delayed in showing trends.

Source: CryptoCompare and ExchangeRate-API

Overall, we also found that USDT is the most purchased crypto asset with Lira on global exchanges.

Source: CryptoCompare

However, not all cryptocurrency activity in Turkey is focused on stablecoins. Wider analysis shows that despite an overall decline in NFT activity since mid-2022, Turkey is the country with the highest web traffic for NFT platforms in the MENA region.

One of the first artists to use artificial intelligence to create immersive artworks was Turkish-American entrepreneur Refik Anadol, who helped pioneer the NFT craze in Turkey. During this period, local crypto platforms such as Paribu attracted and supported NFT activity. Recent market turmoil may have caused NFTs to decline in popularity, but Oral believes NFTs will play an important role in the future. “We believe that NFTs and utility tokens are critical to defining innovative solutions in many industries such as retail, entertainment and the arts. Turkey will indeed become an important center for the next wave of blockchain solutions, and NFT technology will be one of them. A key component."

Saudi Arabia leads the world in year-on-year growth in cryptocurrency trading

No country’s crypto economy grew more than Saudi Arabia last year, with the country’s trading volume increasing by 12.0% year-on-year. In fact, Saudi Arabia was one of only six countries to see year-on-year volume growth during our study period.

Abdulmajed Alhamzah, general manager of Saudi Arabian cryptocurrency exchange Rain, described what makes cryptocurrencies attractive to Saudi users. “Retail investors tend to be the largest group of people turning to cryptocurrencies in search of portfolio diversification. Many already invest in real estate, stocks and other assets, and they are keen to invest in cryptocurrencies. They recall the transformative impact of the Internet and are eager to Get early exposure to cryptocurrencies and expect significant growth in the coming years." He also noted increased adoption and institutional interest in cryptocurrencies in the region, which makes up a large portion of Rain's institutional clients in the region. “Many of the businesses we work with see the long-term value of cryptocurrencies. Cryptocurrencies are viewed as an asset class within clients’ diversified portfolios.”

These positive use cases, along with the overall growth of the cryptocurrency market, may drive interest in cryptocurrencies from the Saudi Arabian government. In 2018, the Saudi government said the use of Bitcoin was illegal and warned of the potential risks of trading in other cryptocurrencies. But the country’s crypto market is still growing. In September 2022, the Saudi Central Bank hired technology entrepreneur Mohsen Al Zahrani as the so-called “crypto sheikh” to lead the digital transformation of the central banking system. Additionally, Saudi Arabia has expressed interest in diversifying its economy by fostering Web3 and blockchain gaming projects. One of the projects is a collaboration with The Sandbox to explore virtual universes. Abdulmajed believes the outlook is optimistic, “Regulators in the region are working hard to provide a strong regulatory framework to promote innovation in the field and, more importantly, protect user funds and protect users from potential fraud.”

Future growth potential of the Middle East and North Africa region

Overall, our data and interviews with cryptocurrency companies in the Middle East and North Africa indicate that the region embraces cryptocurrencies for a variety of reasons. In countries with unstable currency inflation, cryptocurrencies can help protect wealth, while users in countries with more stable economies, such as the UAE, may be more inclined to explore more cutting-edge investment-focused use cases. The UAE also provides a valuable example of how innovative regulations and rules can enable countries to create cryptocurrency hubs that boost local economies.