On October 26, days before the collapse of the cryptocurrency exchange FTX, Sam Bankman-Fried sat down to lunch at an upscale restaurant in Dubai …
On Oct. 26, days before the FTX cryptocurrency exchange crashed, Sam Bankman-Fried sat down to lunch at a high-end restaurant in Dubai, skillfully testing sources of funding at a table of founders, bankers, and financiers, including Anthony Scaramucci.
It turns out to be a final solution before the ex-billionaire’s troubles are revealed to the world. The implosion of FTX, which went from a $32 billion valuation to bankruptcy in the following weeks, sent cryptocurrency markets into a tailspin, sending billions of dollars outflowing from some of the world’s largest exchanges.
The aftershocks have reverberated heavily in the UAE — especially in Dubai, which is luring the world’s largest companies with its crypto-friendly policies. While some financial centers have tightened regulations, many UAE officials have touted virtual assets as a gold mine for economic growth and central to the country’s diversification strategy beyond fossil fuels.
That helped the Gulf state position itself as a hub for digital currencies, attracting industry heavyweights, while at the same time prompting bankers, lawyers and tech executives to switch jobs. Real estate brokers have been reporting crypto money being poured into luxury real estate. However, the end of the bull market has some expressions of regret at the turn of events.
Local exchanges Rain Financial Inc and BitOasis have cut staff in Dubai. Among those reconsidering entering the sector is Hazem Sheesh, a former banker at Barclays plc who recently set up a cryptocurrency hedge fund in Abu Dhabi. While it performed well in its early months, challenges raising institutional funds amid market turmoil prompted him to step back from managing the main fund, according to people familiar with the matter, who asked not to be identified because the information is private.
Sheesh declined to comment.
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FTX was one of the first companies to obtain a license from the Dubai Virtual Assets Regulatory Authority as part of a push to attract business, and the exchange has established its regional headquarters in the city.
At the time, Helal Al Marri, director general of the Dubai World Trade Center Authority which includes VARA, hailed the move and said it came after a rigorous assessment – months before the company went bankrupt.
With FTX and Bankman-Fried now facing investigations from the US to the Bahamas, officials have distanced themselves from the decision, even scrubbing details of its licensing from the regulator’s website.
It was hard to erase some of the links from the show.
Signs promoting an FTX-sponsored gala are lined up during the Abu Dhabi Grand Prix on one of Dubai’s most exclusive cruises. On the racetrack, spectators wore Formula 1 caps emblazoned with the FTX logo.
The company’s collapse was the second major blow to Dubai’s efforts in a matter of months. In June, hedge fund Three Arrows Capital exploded in one of the largest crashes in cryptocurrency trading, weeks after it obtained a temporary license in the city.
The drama has spilled over into other asset managers.
Multiple recently created cryptocurrency hedge funds in the United Arab Emirates put all of their clients’ funds on FTX, forcing a mad scramble to exit the platform before halting withdrawals to avoid its collapse, according to people familiar with the matter.
About 4% of FTX’s global clients are based in the UAE, according to court filings in the company’s bankruptcy case, making it one of the top 10 jurisdictions affected by the fallout.
FTX and Three Arrows Capital did not have extensive licenses, which limited the local ramifications somewhat. The structure of the Dubai Virtual Asset Regulator aims to open the doors for the largest companies to operate but initial licenses allow only a narrow range of services.
However, the incidents have sparked debate about whether the authorities were so clever in their pursuit of wooing crypto firms, legalizing companies that have since gone bankrupt.
“As a regulator, there is always the risk that if things go wrong, they look really bad,” said Dapo Ako, a former compliance expert at UBS Group AG, whose firm J. Awan & Partners assists crypto firms in the UAE. But it is also an opportunity to rethink the framework. If Lehman didn’t fail, we wouldn’t have new banking regulations.”
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A VARA official said FTX did not clear the process for approving any clients or commencing operations. In a statement released in July, they said the license would allow FTX to offer crypto derivatives products and trading services to qualified institutional investors.
Regarding Three Arrows Capital, a VARA representative said the interim permit is an “approval of concept” given the credibility of other licensing jurisdictions, but that steps to a more complete license have not progressed.
In response to questions, an Emirati official said there is a commitment to inclusive economic empowerment with a focus on consumer protection, financial security across borders, and economic stability.
An FTX spokesperson declined to comment.
“walking time bomb”
Much of the UAE’s crypto bet has centered around Binance Holdings Ltd. and its CEO, Changpeng “CZ” Zhao.
The world’s largest cryptocurrency exchange found a more receptive audience in the country, so much so that the 45-year-old CEO made Dubai his home base and quickly made inroads with the country’s power brokers. The UAE has granted multiple licenses to Binance, and more than 500 of the company’s employees have settled in the Gulf country.
After the demise of FTX, Binance’s share of global cryptocurrency trading volumes has increased to nearly 50%, according to data from CryptoCompare. However, the speed of FTX’s breakup sparked debates about the health of centralized cryptocurrency exchanges, and traders pulled money from these places.
At a summit in Abu Dhabi on November 16, economist Nouriel Roubini, a cryptocurrency critic who has been referred to as “Dr. Doom,” who called Binance a “time bomb,” blamed regulators for licensing the company and urged officials to remove Zhao. From the United Arab Emirates.
A day later, the CEO of Binance responded on stage at the Milken Institute conference in Abu Dhabi: “What’s the word for insignificant people?” He said. “We do not care.” The dust came as the exchange received more approvals from the Abu Dhabi Global Market.
Since Zhao’s arrival last year, influential players from Kraken to OKX, Bybit and Crypto.com have strengthened their presence in the UAE, in line with the nation’s ambitions for a digital economy that creates more jobs in the non-oil sector. However, Emirati officials privately expressed concerns about the pace of regulatory approvals — that they may have moved too quickly and failed to identify the Three Arrows Capital and FTX bombings, people familiar with the matter said.
The DMCC, which is under special scrutiny from the US Treasury Department for its lax legislation, attracts the lion’s share of crypto firms — more than 500, according to a DMCC spokesperson.
“I would expect regulators in general to be more cautious and conservative as a result of recent developments,” said Gabriel Dunker, founding partner of Vienna-based Financial Transparency Advisors GmbH, which has previously advised the UAE government.
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UAE crypto players are now on alert for updates from the regulators.
VARA in Dubai plans to announce its CEO in the coming 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 federal cryptocurrency legislation have been delayed as authorities move toward a pressure campaign from industry insiders as well as scrutiny by international bodies over money laundering and consumer protection concerns.
For his part, the Binance CEO has begun demonstrating the reserves system to support “full transparency.” However, his company refused to disclose the full details of its corporate structure.
“We have the largest offices in Dubai and Paris, so you can view those two as global hubs,” Zhao told Bloomberg TV on Thursday.
A Binance spokesperson said that the exchange is growing its Emirati team and is in the midst of a corporate restructuring aimed at giving regulators more clarity on the organisation.
For now, the UAE, like some financial centers, is sticking to its belief in becoming a cryptocurrency hub. Hong Kong reiterated its desire to attract virtual asset firms, while Japan proposed to ease rules for listing tokens. On the other hand, Singapore declared its preference for use-case-based blockchain technology while cautioning against retail cryptocurrency trading.
Abu Dhabi funds, including the Mubadala Investment Company, have formed committees to study investments in the crypto ecosystem. People familiar with the matter said they felt justified in proceeding cautiously and plan to tread carefully in the coming months.
A Mubadala spokesman declined to comment.
But other entities controlled by the Emirati National Security Adviser, Sheikh Tahnoon bin Zayed, have maintained a more aggressive approach, and are moving forward with plans to invest in space. Bloomberg reported Tuesday that Zhao and his team have met with potential backers, including entities affiliated with Sheikh Tahnoon, who oversees a large financial empire in Abu Dhabi.
And earlier this month, just as Bankman-Fried was trying to strike a bailout deal with Binance, fellow Zhao Dominic Longman was in Abu Dhabi, launching a Crypto & Blockchain Association in the Middle East, Africa and Asia along with Emirati officials, who have been moving forward. in their efforts. Industry embrace.
“Abu Dhabi, and the UAE, are pioneers in developing innovative and compliant crypto and blockchain businesses,” said Ahmed Jassim Al Zaabi, Chairman of ADGM. “We are delighted to be able to support MEAACBA, which will contribute to the development of this dynamic sector.”
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