The crypto hype hasn’t yet hit Saudi: Is the kingdom being overly cautious?
Saudi recently moved from number 63 to the top 12 of the “ease of doing business” table produced by the World Bank.
The Saudi Capital Market Authority has over the last 2 years put in place measures to facilitate ease of raising funds, and ease of investment.
The inclusion of Saudi Arabia in the FTSE Russell as secondary emerging market, and the potential inclusion in the MSCI index later this year, are music to investor ears, especially those in financial industries.
But when it comes to cryptos, the Saudi market is all about warning speculators and potential investors of the volatility associated with digital currencies, a sector that has taken the world by storm.
Tokens, Bitcoin and blockchain technologies are not banned and do exist in one form or another in Saudi, but fears of digital currencies’ potential negative impacts abound.
Why is the kingdom so apprehensive?
Potential for criminal activity
Arab News said that investors should beware of cryptocurrencies because of worries about value and potential abuse by criminals, quoting Mohammed Al-Kuwaiz, chairman of the Capital Market Authority (CMA).
Cryptocurrencies such as Bitcoin are “speculative investments” that are very often a “source of fraud,” Saudi Arabia’s main market regulator warned recently.
Al-Kuwaiz said: “We think that cryptocurrencies are currently a solution trying to find a problem. The global financial industry does not know how to treat them. They say they are a possible replacement for conventional currencies, but we do not see that.”
“They also claim to be a store of value, but the jury is still out on that too. What they are today are just speculative investments, and we have warned investors about that. There is very little to justify them and they are often a source of fraud,” he said.
The CMA chairman had no issues with blockchain technology.
“Our belief is that blockchain can be truly transformational across many industries,” he said.
Crypto legal issues
Cryptocurrencies have not been banned in Saudi Arabia, and there’s also at least one Bitcoin ATM in the country (located in Jubail, according to Cryptonews.in, an industry site.
“Unlike most other countries, Saudi has also never said anything regarding payments in cryptocurrencies,” the site said.
“The only major development in the last 6 months came at the beginning of this year when it was heard that Saudi authorities are also drafting a regulatory framework for Bitcoin and cryptocurrencies.”
Saudi and UAE Central Banks have announced testing a new cryptocurrency in a pilot initiative to see the potential of these currencies for cross-border payments.
Recently, Saudi Telecom company (STC) officially signed an MoU with crypto venture ConsenSys, whose motto is to “Harness the power of Ethereum.”
Riyadh Muawad, a Vice President at STC Business, noted the MOU was part of a concerted effort by the company to take the lead in blockchain tech in the Saudi market thus defining the future of digital transformation in Saudi.
ConsenSys has definitely made headway with its consultancy efforts in the Middle East over the past year or so, particularly in the future-minded city of Dubai.
In March 2017, ConsenSys was formally named as the “Blockchain City Advisor for the City of Dubai.” This year, in early April, the company inked an MoU with Smart Dubai to “to standardize government services payment gateways using blockchain technology in Dubai.”
Sharia compliant cryptos
In the Islamic faith, it’s believed that economic activity should be based on real, physical assets, not speculation, and as such investment vehicles using bitcoin, ethereum, and other cryptos need to be compliant with Sharia law, if Muslims are to use them.
“Because of this, Muslim markets have been slower to trade in digital currencies. And there is a lot of money to be made in Islamic finance: Muslim countries contribute about 9% of global GDP,” said Quartz Media, a news website.
“To serve these wealthy Islamic populations, a new type of Sharia-approved crypto is cropping up.”
In Dubai, a startup, OneGram, has created a cryptocurrency that is backed to one of the world’s most stable assets: gold.
Each crypto unit of value is backed by a physical gram of gold that is kept in a safe.
“This therefore limits volatility and speculation, and has been deemed acceptable under Islamic principles by Dubai-based al-Maali Consulting,” said Quartz Media.
HelloGold uses a similar concept with gold being stored in a vault in Singapore, a startup founded last year in Malaysia which according to Quartz was recently Sharia-certified.