Crypto: The Financial Revolution of Our Time With the Middle East as its Breeding Ground
Generations of today have had the privilege of witnessing and participating in multiple convergences of innovation and technology that created seismic shifts in innovation and redefined industries, economies, and societies. The internet revolutionized how we communicate, ushering in an era of information and connectivity. Spotify disrupted the traditional music industry by democratizing access to music. Netflix changed the way we consume content, allowing us to choose what, when, and where we watch. Uber allows for instant mobility at your fingertips.
These innovations challenged the status quo in an effort to better serve the end user by expanding access, promoting connectivity and increasing competition. Cryptocurrency, as the most successful application of blockchain technology, stands to do the same. Crypto is poised to disrupt and innovate one of the oldest and largest industries of all, the financial industry.
Estimated to be valued at approximately USD 28 trillion, the financial industry dwarfs the likes of other recently disrupted industries like music (USD28 billion) or film (USD92.5 billion), and crypto only needs to disrupt and consume a small portion of the financial industry to be considered a leading sector (or be added as the S&P’s 12th sector, as projected by some).
In the trajectory from inception to mass adoption, innovative technologies appear to follow similar trends. First, they are often ignored and disregarded, then they are ridiculed, then they are considered a threat and resisted, until finally they achieve mass acceptance and adoption. In fact, innovative ideas and movements more broadly seem to follow similar trends as well, as indicated by a quote often attributed to Indian revolutionary Mahatma Gandhi in relation to his independence movement “First they ignore you, then they laugh at you, then they fight you, then you win.”
Similar to crypto, the internet was initially considered a passing fad or home to hackers and illicit substances. Blockbuster laughed off a chance to buy Netflix for $50 million in 2000 similar to how traditional financial players often ridicule crypto for its volatility or speculative nature. Regulators and industry players began fighting Uber when it started eating away at the market share of the entrenched taxi industry or when Spotify began to do the same in the music industry. Today, it is arguable that we are at this “fight” stage of the crypto revolution growth trajectory. Regulators are beginning to realize that the crypto industry is here to stay and stands to disrupt the financial industry, leading to increased regulatory scrutiny and calls for increased oversight and regulation.
Needless to say, the Internet, email, Netflix, Spotify, Uber and associated disruptive technologies have surely “won”. Crypto is now on the same path as other disruptive technologies, experiencing the full cycle from inception to mass adoption. Crypto provides an opportunity for a faster, cheaper, and more secure financial infrastructure.
Blockchain technology, as a trustless and immutable decentralized database, stands to innovate and disrupt even more industries from logistics, to gaming, to real estate and more. As we head towards a more connected world, crypto provides a more equitable and borderless financial system enhancing connectivity and mobility, not to mention a safe haven for inflation-stricken countries and currencies.
The Middle East
While the growth trajectory for crypto is becoming more familiar, we should avoid any assumptions that such growth can operate in a vacuum or without adequate consideration given the role of governments and financial institutions in the financial system. I would argue that there is an additional element that underpins the success of any disruptive innovation; and that is a safe haven for incubation. For most of the last 30 years, the West has been the primary breeding ground for innovative technologies.
Pro-innovation ideologies, radical thinking, favorable regulations, clear legal and judicial standards have all contributed to why the West, particularly the U.S. and Europe, have been home to most of the disruptive technologies and products we use today. These are what allowed the likes of Bill Gates and Steve Jobs to start their computer companies in their garage and grow them to become trillion dollar companies.
The global power dynamic does show signs of shifting east, or perhaps power is now being “decentralized” to allow for more eastern participation. The Middle East is shaping up to be the optimal breeding ground for the next wave of technological innovations, especially crypto.
Dubai and the UAE are global leaders in virtual asset regulations and other innovative technologies and products. Bahrain has been regulating digital assets since 2018 and has always been a leader in financial innovation in the region. Saudi Arabia has also garnered global attention with its growth strategy Vision 2030 and its unprecedented modernization and diversification accomplishments. In fact, Saudi Arabia ranked number one globally in crypto economy growth from June 2022 to July 2023; an exceptional statistic given the pending regulatory status of crypto in the Kingdom. Turkey’s citizens are considered leaders in crypto use and blockchain awareness and were considered key players in the last crypto bull run.
The Middle East has most of the key elements to be the optimal choice for becoming the breeding ground for crypto growth and mass adoption. Young and agile leadership in the likes of H.R.H. Mohammed bin Salman Al Saud, H.H. Mohamed bin Zayed Al Nahyan and other regional leaders. Clear and ambitious development targets in Vision 2030, the blockchain and metaverse strategies in Dubai, and others. Forward thinking and adaptive regulatory frameworks in Dubai and Bahrain. Young and digitally native populations. And of course, capital and a willingness to deploy it.
Another important qualitative element relates to the location of the Middle East. As a middle ground between East and West, it stands right in the middle as global awareness shifts east. Additionally, it is a cultural melting pot. With a foot in both, the Middle East can understand western and eastern cultures, take the best of both and be a mediator between the two.
Virtual assets are clearly here to stay. While the current bear market and regulatory scrutiny may spook some newcomers, one must always look at the bigger picture. Traditional markets go through cycles just like crypto. All disruptive technologies went through difficult phases, including one where industry players and regulators scrutinize and regulate. Ultimately, these phases tend to increase the health and resilience of any industry. Large traditional financial players already see the crypto value proposition, as Blackrock files for its BTC ETF, and Bank of America and Goldman Sachs offer crypto exposure to investors. While western governments and global financial oversight entities have been largely skeptical and critical of the crypto industry, the Middle East has largely welcomed it, making it the most suitable candidate to host the next wave of financial innovation.
