BTC and MENA: The digital financial system in the Middle East  - Coindoo

BTC and MENA: The digital financial system in the Middle East 

Editorial Team Avatar
Sep 1, 2023
6 min reading time

2022 has been a challenging year for cryptocurrencies, with values plummeting considerably compared to previous levels. The shifts were all the more noteworthy, considering that the market experienced a heyday between 2020 and 2021. The current year started off much more promising, with values beginning to climb back slowly but surely. Regulatory pressures have caused the market to morph even further, as liquidity was impacted, and investors had to adjust their trading plans to make room for the effects of fluctuations.

Exchanges such as Binance record transactions from all over the world as people look to buy Bitcoin and add it to their portfolios. 2023 is a crucial year for cryptocurrencies, especially in the context of the looming recession, as crypto adoption can either markedly increase or drop quite significantly throughout the year. One of the most noteworthy markets is the Middle East, and as digital finance becomes more visible within the fiscal environment, more people are likely to become interested.

An overview

As a general rule, adoption rates are a precise measure of the success of cryptocurrency, as the numbers show the amount of investor engagement. Despite the previous year’s difficulties, individual, retail and organizational investors have continued to trust cryptocurrencies and maintained their interest in using them during financial transactions. Blockchain-powered systems are becoming more popular as well, as entrepreneurs discover their many advantages, including augmented reliability and better transparency.

The MENA region has been giving increasing attention to the sector and investing resources in technological development. Both government initiatives and improving education relating to digital assets and other virtual resources have fostered innovation and ensured the area remains at the epicenter of cryptocurrency adoption.

Continuous growth remains highly important, as it will contribute to economic diversification and competitiveness, as well as help job growth and development. Those looking for a career in blockchain and cryptocurrencies will have an easier time accessing the necessary resources and achieving their goals.

The Middle East

In all regions of the world, there are some nations that are more crypto-friendly, ready to embrace digital assets with open arms and those that remain reticent for longer and prefer to see in which direction the market evolves before moving further. Israel is one of the most noteworthy examples, as although it adopted cryptocurrencies, it has still shown that it approaches digital assets responsibly.

Regulatory issues are pretty clear in Israel, compared to many other countries, where the legality of the digital fiancé ecosystem is largely unclear. Mining is treated as a business in the country, meaning that it is also subjected to corporate taxation. Most jurisdictions have welcomed cryptocurrencies, and the ones that have issued specific bans on digital money are the exception and not the rule.

All capital gains are taxed at 25% in Israel, but if they’re classified as business expenses, the tax is higher, up to 53%. Incorrect reporting on the records pertaining to profits and losses can trigger penalties. In 2022, the Israeli bank Leumi became the first to allow cryptocurrency trading. Israel-based crypto exchanges exist, one of which was recently purchased by a Canadian company.

Bahrain and the UAE have also been involved in the digital asset market, similarly issuing regulatory frameworks. The former made crypto businesses and startups completely legal in 2019, with permission from its central bank. Many exchanges operate within the country, but not all are registered with banking institutions. The ones that are, however, have licensing, which makes them safer by default.

The United Arab Emirates allows crypto transactions as well. Bitcoin is designated as a commodity in the country, which makes it easier for enterprises to incorporate it into their corporate budgeting schemes.

North Africa

In the case of North Africa, Morocco leads the way, with nearly 3% of the population owning cryptocurrencies. Not only is it among the first in cryptocurrency adoption among MENA nations, it is also in the top fifty globally. The country’s Bank Al-Maghrib, the central financial authority, has shown signs of adopting a more lenient policy towards cryptocurrencies in the future.

Morocco issued a ban on cryptocurrencies back in November 2017. Around that time, digital assets experienced massive growth seemingly overnight, which led to them being officially recognized by central authorities and lawmakers. The Foreign Trade Office deemed digital currencies to be volatile and signaled them as possible gateways for fraud and consumer victimization. The ban still stands officially, but the high adoption rates show that the situation is likely to change soon.

While it would be natural to assume that Egypt has a similarly strong presence in the cryptocurrency market, digital tokens and coins are actually illegal in the country. The penalties for those violating the law are a fine of up to $325,000 and prison time. In March 2023, local authorities arrested twenty-nine individuals, of which thirteen were foreign citizens, for creating a scam platform that used cryptocurrencies as a pretext to conduct illicit transactions. This is happening in the context of an economic crisis after inflation reached 25.8% in January, which saw food prices rising.

Greater Middle East 

The concept of the Greater Middle Easter emerged in the early 2000s and includes the MENA countries alongside the Caucasus and Central Asia. While it might be unexpected for some, several countries in the region have established themselves as crypto-mining hubs. Central Asia is particularly noteworthy for this. A 2021 report showed Kazakhstan as the third-largest crypto-mining nation in the world. Authorities believe the digital finance sector can help the economy become more diversified. Kazakhstan’s crypto boom is expected to expand to neighboring countries as well in due time.

However, analysts have expressed concerns regarding the energy consumption of the power-intensive mining process. Around 7% of Kazakhstan’s generating capacity was taken by crypto, leading to blackouts and power shortages in several areas. Following mass protests from the general public, miners were cut off the national grid. Many expect more sustainable mining solutions, which can be adopted without causing inconveniences for the local communities.

The Middle East is increasingly looking towards fostering technological development and innovation. Adopting and officially incorporating digital finance systems is just a part of it.

* The information in this article and the links provided are for general information purposes only and should not constitute any financial or investment advice. We advise you to do your own research or consult a professional before making financial decisions. Please acknowledge that we are not responsible for any loss caused by any information present on this website.
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