Introduction
The Middle East and North Africa (MENA) region is quickly becoming a hotbed for cryptocurrency adoption. With countries in the region facing economic challenges and a young, tech-savvy population, many are turning to digital assets as a means of financial empowerment.
From decentralized finance (DeFi) platforms to non-fungible tokens (NFTs), the use cases for cryptocurrency in the MENA region are diverse and varied. This article will take a closer look at the factors driving crypto adoption in the MENA region, as well as the unique challenges and opportunities that come with it.
Crypto in MENA Region
Source: 2022 Chainalysis Global Crypto Adoption Index
Chainalysis', a global blockchain data analytics platform, Global Crypto Adoption Index is made up of five sub-indexes, each of which is based on countries’ usage of different types of cryptocurrency services. These are:
On-chain cryptocurrency value received at centralized exchanges, weighted by purchasing power parity per capita.
On-chain retail value received at centralized exchanges, weighted by PPP per capita
P2P exchange trade volume, weighted by PPP per capita and number of internet users
On-chain cryptocurrency value received from DeFi protocols, weighted by PPP per capita
On-chain retail value received from DeFi protocols, weighted by PPP per capita
The higher the final score, the better the rank of the country, with a score of 1 being the highest possible ranking.
According to the 2022 Global Crypto Adoption Index, the Middle East and North Africa region may be considered a small player, but it's experiencing a significant growth in the crypto market. From July 2021 to June 2022, the cryptocurrency received by users in the MENA region amounted to $566 billion, showing a 48% increase compared to the previous year.
The growth of crypto transactions volume by specific regions are as follows:
Source: chainalysis.com
The table below shows the year-on-year growth in crypto volume for specific countries in the MENA region:
Source: chainalysis.com
Countries in MENA region by value of cryptocurrency received in 2022, see below:
Source: chainalysis.com
The significant growth in crypto adoption in the MENA region can be attributed to several factors. The use of digital assets for savings preservation and remittance payments, as well as the implementation of more favorable regulations towards crypto, have all played a role in driving this trend.
Egypt
Crypto is experiencing significant growth in Egypt due to a combination of rising crypto-based remittances and increased inflation. From July 2021 to June 2022, Egypt's crypto transactions experienced a threefold increase compared to the previous year. This growth can be attributed to the fact that remittances play a significant role in the country's economy, accounting for 8% of Egypt's GDP. Additionally, with inflation in Egypt jumping to a five-year high of 18.7% in November 2022, it's not surprising that many Egyptians are turning to crypto as a hedge against inflation. The intersection of these two factors, remittances and inflation, help explain why Egypt is the fastest growing crypto market in the MENA region in 2022.
The adoption of crypto in Egypt is impressive given that the Central Bank of Egypt warned in September 2022 that those involved in crypto trading, dealing, or promoting its exchange could face imprisonment and fines ranging from one million to ten million Egyptian pounds. Despite this warning, the growth of crypto in Egypt remains substantial.
Turkey
Turkey has seen a significant adoption of crypto in the region, with crypto transactions accounting for $192 billion of MENA's $566 billion total transaction volume, making it the largest crypto market by country in the region. Similar to Egypt, Turkey has experienced severe inflation, with the Turkish Lira inflating by over 80% in 2022.
According to research by Turkish crypto exchange Paribu, there are at least 8 million people in Turkey actively engaged in crypto in 2022. A Morning Consult poll found that 54% of Turkish crypto users continue to buy or sell digital currencies at least once a month, making it the second-highest rate globally, behind Nigeria. Despite the inherent volatility and potential regulatory risks, the adoption of crypto in Turkey remains strong.
Morocco
In Morocco, the adoption of crypto appears to be more closely tied to the government's regulatory stance than to economic factors. The country, which has the highest levels of crypto ownership in North Africa, has shifted towards a more permissive legislative framework by partnering with the IMF and World Bank to develop regulations that focus on innovation and consumer protection.
Despite relatively moderate inflation rates of 8%, the Moroccan government's new attitude towards crypto has led to a significant increase in grassroots adoption. This is a marked change from 2017, when the central bank of Morocco warned that penalties and fines would be imposed on any crypto transactions within the country. Now, with a partnership in place with the IMF and the World Bank, crypto regulations in Morocco are geared towards fostering innovation and protecting consumers.
Gulf States
The Gulf states, consisting of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE), have been making significant strides in the world of cryptocurrency. Saudi Arabia has the third-largest crypto market in the region, while the UAE ranks fifth. However, it is the emirate of Dubai that has become a global hub for crypto companies, as they have formed partnerships with banks and financial institutions to serve retail customers across the Middle East and North Africa region as well as Asia.
In January, the UAE Cabinet introduced a new regulation and an independent regulatory authority for virtual assets and virtual asset service providers. This marks the state's first regulatory regime for the sector at the federal level. The Dubai Virtual Asset Regulation Law and the Dubai Virtual Assets Regulatory Authority (VARA) will oversee the growth of the virtual asset business environment, including regulation, governance, and licensing. This approach has been well-received by crypto executives, with the founder of the world's largest crypto exchange, Binance, operating out of Dubai.
In addition to the UAE, the Kingdom of Bahrain is also seeing an increase in cryptocurrency adoption. Local companies are enabling payments in crypto such as Bitcoin. EazyPay, an online payment platform regulated by the Central Bank of Bahrain, has partnered with Binance Pay to enable crypto payments in the country. This new crypto payment option will be available in over 5,000 point-of-sale terminals and online payment gateways across Bahrain.
The kingdom of Saudi Arabia is embracing Web3 technology in various forms. One example is that the country celebrated its National Day in the metaverse for the first time. Additionally, the Saudi Central Bank (SAMA) and the Central Bank of the United Arab Emirates have collaborated on a pilot Central Bank Digital Currency. In September, SAMA appointed a new head of virtual assets and CBDC to lead its program.
The kingdom is also making progress in tokenizing real estate and implementing blockchain in the healthcare sector and supply chain management. Recently, Saudi British Bank (SABB) has used blockchain to enhance the digitization of letters of credit.
Oman has also been a leader in the Middle East and North Africa (MENA) region when it comes to blockchain technology. A few years ago, the government organized courses and seminars to raise awareness about the importance of blockchain and the Central Bank of Oman has been studying the pros and cons of using cryptocurrencies in the economy. Recently, a major energy company, Al Shawamikh Oil Services, has partnered with Frontech to develop a sustainable energy management system based on blockchain technology that will track and manage sustainable energy production units on the blockchain.
Similarly, Qatar has also shown a renewed interest in blockchain technology. Previously, the Qatar Central Bank (QCB) had banned the mining and investment of Bitcoin and other cryptocurrencies. However, now the QCB is changing its approach and is showing strong interest in creating a legal framework for the use of digital assets and blockchain applications. Additionally, the country is exploring tokenized solutions for real estate and will establish a board of experts next year under the Qatar Financial Center.
Overall, the Gulf states are becoming institutional crypto players in their own right, with a focus on regulations and partnerships with banks and financial institutions. This is a positive development for the crypto industry, as it will provide more opportunities for growth and stability in the region.
Summary
Islamic law views money as a tool for measuring value, not as an asset in itself. This means that earning income from interest or speculation is seen as usurious and exploitative, and is therefore prohibited. This has led to some initial skepticism from central banks and government leaders in the Middle East towards cryptocurrency.
However, as the use of Web3/blockchain technology has been recognized as an important alternative for financing activities that align with the principles of Islamic finance, leaders in the region have begun to view it more positively. Despite the global downturn in the cryptocurrency market, the Middle East has seen the fastest growth in crypto adoption, driven by factors such as the use of digital assets for savings preservation and remittance payments, as well as favorable regulations.
The Arab world sees cryptocurrency as a permanent fixture in their economy and financial system.
DISCLAIMER: The information contained in this article is for educational purposes only and does not constitute any form of advice or recommendation by Wheatstones, and is not intended to be relied upon by users in making (or refraining from making) any investment decisions.