In this issue
- Dubai: Oasis or mirage?
- Mt. Gox: Payback time
- e-CNY: Game on
From the editor’s desk
The pace and sheer volume of change in the cryptocurrency industry can be so rapid that it’s often a case of “blink and you’ll miss it.” But every so often, developments come in longer cycles.
An announcement this week by exchange operator Crypto.com that it’s opening a regional office in Dubai, and an almost concurrent declaration by Bybit that it’s moving its global headquarters to Dubai, together have the distinct feel of one of those longer and more profound emerging trends.
Coming against the backdrop of their heavyweight counterparts FTX and Binance having won licenses to operate in the emirate in the past fortnight, a broader dynamic appears to be at play alongside these fast-moving developments.
Dubai has made no secret of its desire to become a digital asset hub. Just last month it introduced a virtual asset law designed to put it at the forefront of crypto regulation, and it has designated the 39-story Dubai World Trade Centre for development as a specialized crypto zone that will be home to its own regulator.
The emirate appears to be on a winning streak when it comes to hothousing its crypto economy. But where there are winners, there can be losers, too, and it’s worth noting that both Crypto.com and Bybit are Singapore-based operations.
Singapore’s allure as a crypto hub has been fading for some time now as its central bank takes an increasingly dim view of non-institutional involvement in the industry, imposing a marketing ban and issuing warnings that crypto is unsuitable for the general public. Amid this climate, and thanks to the difficulty of obtaining regulatory approvals, Binance has wound up its exchange operation in the city-state and other crypto exchanges have pivoted out of its retail market.
So is it time crypto companies moved on from Southeast Asia’s answer to Switzerland and headed for a new digital asset destination in the desert? Or could Dubai’s latest reinvention of itself be simply a mirage, with regulators in investors’ home countries ready to pounce on their activities in a country added just this month to the Financial Action Task Force’s gray list of high-risk jurisdictions?
The last big wave of crypto exchange migration took place five years ago when China banned them from operating within its borders. Whether the dash for Dubai turns out to be as significant a development is something we’ll be watching closely, as exchanges from Singapore and elsewhere engage in a shift that may yet invite description as a “sheikh-up.”
Until the next time,
Founder and Editor-in-Chief
1. Digital dunes
By the numbers: Crypto.com — over 5,000% increase in Google search volume.
Crypto.com, Bybit and other major cryptocurrency exchanges are deepening their ties to Dubai as the emirate embarks on a drive to become a global crypto hub.
- Singapore-based crypto Crypto.com announced on Monday that it had decided to establish a regional office in Dubai and that it had become the exclusive global cryptocurrency trading platform founding partner of the Investopia Summit, a metaverse business conference fixture launched by the government of the United Arab Emirates.
- Bybit, another exchange headquartered in Singapore, announced on the same day that it had received in-principle approval to conduct “a full spectrum of virtual assets business in Dubai” and would move its global headquarters to the city. Bybit’s new HQ is expected to start operating as soon as next month.
- Dubai has been busy trying to transform itself into a global crypto hub since last year. In September, regulators signed an agreement to support virtual asset trading in the Dubai World Trade Centre free zone. This month, the UAE announced the Dubai Virtual Asset Regulation Law, which aims to establish a regulatory framework for the virtual asset industry.
- Earlier this month, crypto exchanges FTX and Binance received virtual asset licenses from Dubai to offer services to qualified investors under the new law.
- Singapore — Crypto.com and Bybit’s home base — has been overhauling its approach to the crypto industry, and crypto exchanges have come under its increased regulatory scrutiny. In January, the country’s central bank issued guidelines to restrict cryptocurrency service providers from marketing or promoting their services to the general public, for whom it has deemed crypto “not suitable.”
Forkast.Insights | What does it mean?
Dubai has been quick to position itself as a safe haven for digital asset projects based in Asia that are looking for a more welcoming regulatory environment.
Crypto.com, Bybit, FTX and Binance are among the industry players that have responded positively, and the emirate’s overtures have also struck a chord with Indian startups that see their own country’s regulatory ambiguity as an obstacle to future growth. Dubai’s potential is also tempting British startups, which are facing their own regulatory issues.
Although authorities in the countries where crypto projects are quitting may chalk up their departure as a victory for regulation, the opposite may be true. Projects that have moved offshore may still be able to serve the markets they have chosen to leave. Britain’s Financial Conduct Authority, for example, allows exchanges and other crypto companies to offer their services to U.K. citizens because they operate from outside the country’s borders, putting companies that have opted for compliance while staying in Britain at a disadvantage. But the real losers from such regulatory side-stepping are consumers. Companies that operate from abroad are difficult to regulate and even harder to pursue when things go wrong.
The murky status of where Binance is based, for instance, and the rules it should follow, have made taking legal action against it challenging. If crypto is to be adequately regulated, governments need to think more holistically about legislation and combine incentives with penalties.
2. Peak irony for Mt. Gox investors
By the numbers: Mt. Gox — over 5,000% increase in Google search volume.
Around US$6 billion of Bitcoin from Mt. Gox, a now defunct crypto exchange based in Tokyo, may be released to the market “sooner” than expected, according to its former chief executive, Mark Karpeles.
- The Japanese trustee for Mt. Gox is likely within the year to return the exchange’s remaining US$6 billion Bitcoin trove to its customers, who suffered losses in 2014, Karpeles told Forkast in an exclusive interview.
- Mt. Gox, launched in 2007 as a trading platform for card game Magic: The Gathering, was three years later repurposed to become one of the world’s first Bitcoin exchanges, and at its peak handled more than 80% of all Bitcoin trading. The company went bankrupt in 2014 after a hacker looted most of its assets, but it still held around 200,000 BTC when it went bust.
- Karpeles, now cleared of criminal charges in Japan, says he’s putting the knowledge he has gained from the incident into building UNGOX, which he hopes will be a comprehensive ratings agency — like Moody’s or S&P — for cryptocurrency exchanges.
- Karpeles is offering Mt. Gox non-fungible tokens (NFTs) that will grant the exchange’s former customers lifelong free access to UNGOX and its services.
Forkast.Insights | What does it mean?
The return of Bitcoin to investors who lost their shirts in the Mt. Gox scandal may seem like the closing of a chapter of crypto’s shady early days, but things aren’t quite so simple, and the likely restitution payments in the Mt. Gox case represent nothing like a fairytale ending.
The Mt. Gox heist was notable due to the sum of money that was stolen — some US$470 million at the time — when Bitcoin was worth little more than US$1,000. However, compared to the sums stolen in more recent hacks, Mt. Gox isn’t an outlier.
As crypto prices have risen, so has interest in breaking into exchanges and Web 3.0 companies with patchy security. In the past year alone, nearly US$2 billion has been stolen. Among the most notable cases are those involving Ronin Network (around US$550 million on March 23, the date of the exploit), Poly Network (US$610 million) and Wormhole (US$326 million). What this demonstrates is that security is still not being taken sufficiently seriously by crypto companies.
As Karpeles warned in his interview with Forkast, a repeat of Mt. Gox is entirely possible in the current crypto exchange environment.
If the crypto sector is to close the book on hacks and theft, it needs to think more about keeping customers’ holdings secure, rather than hoping that hackers give it back, or that the worth of any crypto remaining after a heist appreciates to the point at which a value-neutral return to customers is possible.
3. Digital yuan on track
China’s new central bank digital currency (CBDC) and a metaverse will feature at the 2022 Asian Games, to be held in the Chinese city of Hangzhou, according to a local data company.
- Zhengyuan Data, a Hangzhou-based IT firm, announced last week that it was involved in the digitalization of certain Asian Games venues, which would feature digital yuan applications and “digital humans” in a metaverse, according to the National Business Daily, a state-controlled media outlet.
- China’s CBDC, officially called e-CNY, is being tested in more than 10 cities and districts across the country. It reached a total transaction volume of US$11.2 billion last year and was the object of much promotion by Chinese authorities at the recent Beijing Winter Olympics.
- Earlier this month, state bodies including the central bank announced support for parts of Zhejiang Province, of which Hangzhou is the capital, to carry out the third batch of e-CNY pilots, with Hangzhou serving as a major testbed for e-CNY applications.
Forkast.Insights | What does it mean?
China’s announcement that it is showing off the e-CNY at another big sporting event shouldn’t come as a surprise. Beijing has shoveled money and resources into developing a payment system that it hopes will wean Chinese people off Alipay and WeChat Pay and help internationalize the use of the yuan.
The Winter Olympics was a major opportunity for China to show the world that e-CNY was safe and easy to use. But how successful was it? The best numbers suggest that some 2 million yuan (US$315,000) of e-CNY was spent each day during the event, but adoption and usage appear to have been lower than expected.
Tellingly, there is no breakdown of how much of the daily e-CNY spend during the Olympics was accounted for by Chinese nationals and how much by foreigners. The Asian Games, in this light, present a second big opportunity for Beijing to showcase its digital money.
To convince outsiders of e-CNY’s bona fides as a proper currency, China needs it to work outside of the ambit of its central bank, and it has already started experimenting in Hong Kong. The showcasing of e-CNY at the Olympics was somewhat spoiled by U.S. lawmakers, who pointed out its potential surveillance uses. Perhaps China will have better luck pushing its new currency at an event to which Americans aren’t invited.