Wednesday, 8 March 2023

Crypto Seen as Investment Opportunity in the MENA Region Says Iceberg Capital Executive Chairman

by Berkeley Lovelace

Crypto Seen as Investment Opportunity in the MENA Region Says Iceberg Capital Executive Chairman

While interest in digital assets has waned in some parts of the world, in the Middle East and Northern Africa adoption of crypto has been skyrocketing according to Mustafa Kheriba, the executive chairman of the asset management firm Iceberg Capital Limited. According to Kheriba, factors such as high inflation and residents’ desire for high-return investment opportunities have drawn many to cryptocurrency.

The Many Benefits of Blockchain

Despite the bearish conditions that persisted in much of 2022, according to Mustafa Kheriba, the executive chairman of Iceberg Capital Limited, interest and adoption of crypto and blockchain has not dissipated. To support this assertion, Kheriba pointed to the 23rd State of the Developer report which suggests that most experienced software developers are “most likely to be working on blockchain projects.”

Nevertheless, the Iceberg Capital Limited executive chairman told News interest has particularly been surging in the Middle East and North Africa (MENA) region where some regulators have seized the initiative by establishing or proposing to create frameworks for regulating crypto assets.

In addition, Kheriba said factors such as inflation or the depreciation of national currencies have played a part in driving up the number of citizens that have embraced crypto. On the other hand, for residents of more affluent countries, cryptocurrency is increasingly seen as an investment opportunity.

In the rest of his written responses sent to News via Whatsapp, Kheriba also shared his thoughts on the future of the Society for Worldwide Interbank Financial Telecommunication (SWIFT).

Below are the rest of Kheriba’s responses to the questions sent. News (BCN): Why is crypto adoption skyrocketing in the MENA region and would you say users are being pushed towards crypto by external forces or pulled by crypto?

Mustafa Kheriba (MK): Momentum within the MENA region has been building for quite some time now, thanks to multiple reasons. There are country-specific factors at play. Inflation in countries like Egypt and Turkey is pushing people towards crypto as a store of value and a hedge against fiat currency devaluation. This is particularly relevant in countries where the government’s monetary policy is unpredictable and cannot be relied upon for stability.

On the other hand, in Gulf countries, the rapidly evolving regulatory frameworks, financial institutions, banks, and high net-worth individuals (HNWIs) are embracing crypto as an investment opportunity. The blockchain technology behind crypto has many benefits, including decentralized finance (Defi) over traditional finance (Tradfi), which is becoming more and more apparent to banking and finance professionals in the region.

Furthermore, the convenience and cost-effectiveness of cross-border remittances are pulling people into crypto. In a region where cross-border payments can be expensive, time-consuming, and often opaque, crypto provides a faster, easier, and cheaper alternative. This is particularly relevant for migrant workers who are looking for ways to send money back home to their families.

Overall, it’s a combination of external factors and the unique features of crypto that are driving the skyrocketing adoption of crypto in the MENA region. As the regulatory environment continues to evolve and more people become aware of the benefits of crypto, we can expect to see even more growth in the region’s crypto market in the years to come.

BCN: How do the main drivers of crypto adoption in the MENA region differ from those in the rest of the world?

MK: One of the main differences is the regulatory environment. While the rest of the world is still figuring out how to regulate crypto, the UAE and other Gulf countries have been focusing on creating a regulatory framework that encourages the development of the market while adhering to AML [anti-money laundering] guidelines. This has created a safe environment for financial institutions, banks, and enterprises to adopt blockchain technology.

Another factor that is driving crypto adoption in the MENA region is the emphasis on secure cross-border remittances. The region has a large migrant population, and traditional cross-border payments can be expensive and time-consuming. Crypto remittances offer a faster, easier, and cheaper alternative, making them a popular choice in the region.

Additionally, the UAE and specifically the ADGM [Abu Dhabi Global Market] in Abu Dhabi, has emerged as a global crypto hub with strong ties to international markets. This has attracted not only retail customers but also large institutions and enterprises to adopt crypto.

BCN: Do you think that crypto-based remittances could one day replace the Society for Worldwide Interbank Financial Telecommunication (SWIFT)?

MK: Crypto remittances have indeed been eating into the dominance of SWIFT, and countries within the MENA region have increasingly been relying on crypto, especially stablecoins, for remittance. The fact that Egypt’s national bank is already building a crypto remittance corridor between Egypt and the UAE, where a large number of Egyptians work, highlights the growing strength of crypto in remittances.

SWIFT, the current interbank messaging system for cross-border payments, is certainly inefficient today. Stablecoins and crypto technology can make cross-border payments seamless, efficient, and fast. They solve the problems, at least for remittances, that SWIFT should have solved over a decade ago.

Will crypto fully replace SWIFT as the preferred mode for remittances? That’s unlikely, especially considering SWIFT’s operations continue to evolve. Even though their innovations haven’t been able to keep pace with users’ expectations, they have historically introduced enough innovation to keep alternatives from posing a serious challenge. As more people become aware of the benefits of crypto-based remittances and the technology continues to evolve, we can expect to see more adoption and integration of crypto into the global financial system. This could eventually lead to crypto-based remittances becoming the preferred mode of cross-border payments.

BCN: How are the likes of ADGM and organizations such as the Middle East, Africa & Asia Crypto & Blockchain Association (MEAACBA) helping, if at all, accelerate the adoption of blockchain technology?

MK: The very fact that we launched our Venom Ventures Fund (VVF) out of the ADGM speaks volumes about the critical role that ADGM plays not just for the blockchain industry but for the financial services sector in general. ADGM has emerged as the jurisdiction of choice for crypto investors and builders in the region. Its proactive regulatory regime allows all participants to collaborate and innovate.

With the Middle East, Africa & Asia Crypto & Blockchain Association (MEAACBA) being based in the ADGM, the MEAACBA has the potential to help accelerate the development of the [region’s] blockchain ecosystem by providing its members with a coordination mechanism between government agencies, regulators, banks, legal, tax, and advisory firms.

BCN: Can you discuss how the rapidly evolving regulations in the region are likely to affect blockchain adoption?

MK: Regulations, historically, have always lagged far behind innovation. Thankfully, that’s not the case with the UAE, where the regulatory initiatives have been innovation-friendly and they continue to evolve. A balanced regulatory framework is needed to ensure that the crypto space is safe for large institutions, traditional business enterprises, developers, and users alike. Regulations will bring legitimacy to the blockchain industry and help institutions embrace crypto at a faster pace than ever before.

What are your thoughts about this interview? Let us know what you think in the comments section below.