Why isn’t the Crypto crash sinking ships in the Middle East?

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This file photo shows bitcoin tokens

Photo: AP

The global economy is on the brink of a deep and prolonged recession. The news is grim amid rising inflation, skyrocketing energy prices, war in Eastern Europe and the uneven recovery from the COVID-19 pandemic. The result is falling asset prices and the real possibility of a global food crisis. It’s not just traditional markets that are being hit. Cryptocurrencies, including major coins like Bitcoin and Ethereum, have seen major selloffs in line with falling markets. Many of these assets were intended to act as a hedge against inflation, but that was not the case. This has caused panic across the crypto community, but two markets have not felt the sting in the same way: the United Arab Emirates and the Baltic countries. Given their relative isolation from the current downturns due to long-term thinking, these countries are in an enviable position to turn this crisis into an opportunity.
These countries are not worried about the market downturn because they have invested in the underlying technology that underpins cryptocurrencies at the state level. Estonia is at the forefront and investing significant resources in blockchain technology to run its government. The technology provides a digital ledger of transactions stored on hundreds of thousands of computers that are virtually impossible to hack. Estonian citizens interact with their government through digital interfaces secured on a private blockchain. This makes the services run more efficiently and the country more secure.

Given their checkered history with Russia, the Baltic states have used blockchain technology to set up systems that allow their governments to function remotely. In the event of a Russian invasion, the political leadership can access their private blockchain and the reins of power from anywhere. When blockchain is such an integral part of the fabric of government, Bitcoin’s price doesn’t cause many earthquakes.

While the UAE has not had to undertake such extravagant national security measures, the country has recently adopted blockchain technology. In 2016, the Dubai government unveiled a bold blockchain strategy that called for rapid integration of government services and blockchain technology. This was manifested in initiatives such as the paperless strategy, which saw various government agencies move from paper to transactions securely stored on a blockchain. While the ambition is there, the implementation of this new blockchain world has come in spurts. Even for small countries like the UAE, switching systems to blockchain takes time.

The UAE has also been reluctant to allow citizens and residents unrestricted access to cryptocurrency. While you can now buy and sell cryptocurrencies with relative ease, this wasn’t always the case. The slow adoption of crypto, coupled with the relatively large amount of expendable cash among locals, may have something to do with the UAE’s relative isolation from the chaos in the crypto markets. From all of the above, it is clear that the UAE sees blockchain technology (and, to some extent, cryptocurrency) as a crucial part of creating its knowledge-based economy.

While government continues to embrace other aspects of a modern knowledge economy, from the metaverse to agricultural technology, blockchain will continue to play a prominent role, regardless of the price of a bitcoin. The creation of the world’s first ministry for artificial intelligence, which also has a blockchain mandate, should support the transition. Let’s not forget that the UAE is a crucial hub in the global remittance market. As more remittances flow into the crypto space, the UAE is likely to unveil its coin or digital currency to stay on top in this lucrative sector of the economy.

What does this mean for the UAE and Baltics stance on the current crypto price drop? Well it should be clear. Countries that have long-term investments in blockchain infrastructure projects are less worried about the short-term crypto price swings. The UAE also hosts significantly more capital to buy the crypto dips, but that detracts from the more important point.

The price of the world’s leading cryptocurrency, Bitcoin, is impressively volatile. Over the past year, it has gone from a high of around $67,000 to its current low of around $30,000 per bitcoin. This type of price discrepancy is unlikely to end anytime soon. This reality should not cloud blockchain technology’s potential to transform the way we live and interact with each other. The underlying technology is becoming mainstream as more investors and governments understand the enduring power of blockchain. In smaller countries with nimble regulatory frameworks, the ups and downs of the crypto market haven’t slowed the process of bringing blockchain into the mainstream. As crypto markets continue to cool, these small countries will enjoy the lion’s share of innovation in the blockchain world. The current market downturn presents an excellent opportunity, and a few years from now, not many likely will remember this flash on the radar.

In consultation with Syndication Bureau

Joseph Dana is guest author. The views expressed are personal.

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