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FTX turbulence reminds of crypto giants’ embrace in Dubai


(Bloomberg) —

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On October 26, days before his crypto exchange FTX collapsed, Sam Bankman-Fried sat down for lunch at a high-end restaurant in Dubai, subtly testing its fundraising capabilities. capital at the desks of founders, bankers and financiers, including Anthony Scaramucci.

It turned out to be one last stumbling block before the former billionaire’s troubles were exposed to the world. FTX’s boom, from a $32 billion valuation to bankruptcy in the ensuing weeks, sent the crypto market into a tailspin, pushing billions of dollars of funds out of several exchanges. largest in the world.

The aftershocks have resonated particularly strongly in the United Arab Emirates — particularly in Dubai, which is working to attract the world’s biggest companies with crypto-friendly policies. . While some financial hubs tighten regulations, many UAE officials have promoted virtual assets as a goldmine for economic growth and a pillar of the nation’s strategy to diversify beyond fossil fuels. jelly.

That has helped the Gulf state position itself as a crypto hub, attracting industry heavyweights while spurring bankers, lawyers and tech executives to switch jobs. Real estate brokers have reported pouring cryptocurrency into luxury real estate. The end of the bull market, however, has some expressing regret that events have changed.

Local exchanges Rain Financial Inc. and BitOasis have reduced the number of employees in Dubai. Among those who are rethinking entering the sector is Hazem Shish, a former Barclays Plc banker who recently founded a crypto hedge fund in Abu Dhabi. While it performed well in its first few months, challenges raising funds for the institution amid market turmoil prompted him to step back from his job as a primary fund manager, according to people familiar with the matter. In this regard, the person requested anonymity because the information is private.

Shish declined to comment.

Sam Bankman-Fried fooled the crypto world and maybe even himself

FTX was one of the first companies to be licensed by Dubai’s Virtual Assets Authority as part of an effort to attract business, and the exchange has established its regional headquarters in the city.

At the time, Helal Al Marri, general manager of the Dubai World Trade Center Authority, where VARA is located, praised the move and said it followed a rigorous review – several months before the company went bankrupt.

With FTX and Bankman-Fried now facing investigations from the United States to the Bahamas, officials shied away from that decision, even removing its license details from the regulator’s website. physical.

Some links are harder to remove from view.

Banners celebrating an FTX-sponsored party during the Abu Dhabi Grand Prix line one of Dubai’s most exclusive waterfront driveways. At the track, spectators wore Formula 1 hats emblazoned with the FTX logo.

double blow

The company’s demise is the second major blow to Dubai’s efforts within months. In June, hedge fund Three Arrows Capital boomed in one of the biggest crypto trading bankruptcies ever, weeks after receiving a temporary license in the city.

The series has extended to other asset managers.

According to people familiar with the matter, many recently established crypto hedge funds in the United Arab Emirates have placed all of their clients’ funds in FTX, forcing a frantic scramble to exit the platform before withdrawals are halted to prevent their own collapse.

About 4% of FTX’s global customers are based in the UAE, according to court filings in the company’s bankruptcy, making it one of the top 10 jurisdictions affected by the fallout.

FTX and Three Arrows Capital do not have comprehensive licenses, limiting local influence to some extent. The structure of the Dubai virtual asset regulator is intended to be open to the largest companies, but the initial license only allows for a limited number of services.

However, the incidents have sparked a debate about whether the authorities were too agile in their efforts to lure crypto companies into lending legitimacy to bankrupt companies.

“As a regulator, there is always risk,” said Dapo Ako, a former compliance specialist at UBS Group AG, whose firm J. Awan & Partners is supporting crypto companies set up in the UAE. The risk is that if things don’t go as planned, things will be very bad. “But it is also an opportunity to rethink the framework. If Lehman hadn’t collapsed, we wouldn’t have had new banking regulations.”

The collapse of Three Arrows Capital has become a cryptocurrency contagion

An official at VARA said FTX had not completed the approval process to onboard any customers or start operations. In a statement in July, they said the license would allow FTX to deploy crypto derivatives products and trading services to qualified institutional investors.

Regarding Three Arrows Capital, a VARA representative said the provisional license is a “conceptual approval” that includes the credibility of other licensing jurisdictions but the steps to obtain a complete license. more adjustment does not progress.

In response to questions, a UAE official said there was a commitment to enabling mass economic empowerment, with a focus on consumer protection, cross-border financial security and economic stability.

An FTX spokesperson declined to comment.

‘walking time bomb’

Much of the UAE’s staking activity on cryptocurrencies is centered around Binance Holdings Ltd. and CEO Changpeng “CZ” Zhao.

The world’s largest cryptocurrency exchange has found a much more receptive audience in the country, to the point where the 45-year-old executive has chosen Dubai as its headquarters and quickly infiltrated the crypto houses. state power broker. The UAE has granted Binance multiple licenses and more than 500 of the company’s employees have settled in the Gulf country.

Following the collapse of FTX, Binance’s share in global crypto trading volume has increased to nearly 50%, according to data from CryptoCompare. However, FTX’s speed of unraveling has sparked a debate about the health of centralized cryptocurrency exchanges and the traders who have withdrawn from such locations.

At a summit in Abu Dhabi on November 16, economist Nouriel Roubini, a cryptocurrency critic who was known as “Dr. Doom,” called Binance a “walking time bomb,” blamed regulators for licensing the company, and called on officials to remove Zhao from the UAE.

A day later, the Binance CEO answered on stage at the Milken Institute conference in Abu Dhabi: “What word for the unimportant?” he say. “We do not care.” The boom comes as the exchange receives more approvals from the Abu Dhabi Global Market.

Stricter regulations?

Since Zhao’s arrival last year, influential players from Kraken to OKX, Bybit and Crypto.com have built their presence in the UAE, in line with the nation’s ambitions for a digital economy. Digital creates more jobs in the non-oil sector. However, UAE officials have expressed concern about the speed of regulatory approval – that they may have proceeded too quickly and failed to identify the explosions of Three Arrows Capital and FTX, people familiar with the matter said. this problem said.

According to a DMCC spokesperson, the Dubai Multi-Commodity Center, which has been specially overseen by the US Treasury Department because of its looser regulations, is attracting the majority of crypto companies – more than 500 companies.

Gabriele Dunker, Vienna-based founding partner of Financial Transparency Advisors GmbH, which has previously advised the UAE government, said: “I hope that regulators in general will be careful and careful. more important due to the latest developments.

The World’s Largest Crypto Asset Starts With a Friendly Game of Poker

UAE crypto players are currently being alerted to updates from regulators.

Dubai’s VARA plans to announce its CEO in the next few weeks and intends to hold further consultations with key stakeholders before the end of the year, people familiar with the matter said.

Meanwhile, Abu Dhabi’s efforts to finalize the federal cryptocurrency law have been put on hold as authorities navigate a lobbying from industry insiders as well as scrutiny from regulatory agencies. international agency on money laundering and consumer protection issues.

For his part, the Binance CEO initiated a proof-of-reserve system to support “complete transparency.” However, his company has refused to disclose the full details of the company structure.

“We have the biggest offices in Dubai and Paris so you can see those two places as global hubs,” Zhao told Bloomberg TV on Thursday.

A spokesperson for Binance said that the exchange is growing its team in the UAE and is in the process of restructuring the company to help regulators better understand the organization.

Close the call

Currently, the UAE, like a number of financial centers, is steadfast in its belief of becoming a crypto hub. Hong Kong has reiterated its desire to attract virtual asset companies, while Japan proposes to relax token listing rules. Singapore, on the other hand, has stated its preference for use-case-based blockchain technology while also warning against retail cryptocurrency trading.

Abu Dhabi funds include Mubadala Investment Co. has established committees to study investments in the crypto ecosystem. People familiar with the matter said they feel vindicated for proceeding cautiously and plan to proceed carefully in the coming months.

A spokesperson for Mubadala declined to comment.

But other entities controlled by UAE National Security Adviser Sheikh Tahnoon Bin Zayed have maintained a more aggressive approach, proceeding with investment plans in space. Zhao and his team met with potential backers, including organizations affiliated with Sheikh Tahnoon, who oversees a major financial empire in Abu Dhabi, Bloomberg reported on Tuesday.

And earlier this month, just as Bankman-Fried was trying to finalize a rescue deal with Binance, Zhao’s colleague Dominic Longman was in Abu Dhabi, launching the Middle East Blockchain & Cryptocurrency Association, Africa and Asia along with UAE officials who are promoting their projects. capture of the industry.

Ahmed Jasim Al Zaabi, president of ADGM, said: “Abu Dhabi and UAE are at the forefront of developing innovative and regulatory-compliant crypto and blockchain businesses. “We are delighted to be able to support MEAACBA, which will contribute to the growth of this dynamic sector.”

–With support from Nicolas Parasie, Leen Al-Rashdan, Suvashree Ghosh and Philip Lagerkranser.

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