‘Sandboxed’ crypto exchange Rain attempts to be the region’s first exchange with central bank approval. Distrust and cultural challenges, however, mean it has a steep hill to climb.
The Gulf Cooperation Council (GCC) – the economic union consisting of Saudi Arabia, Bahrain, Kuwait, Oman, Qatar, and the United Arab Emirates – may have its first fully licensed digital currency exchange by 2019. According to reports, the Bahrain-based Rain has suggested it will seek a full operational license for the region.
Rain, backed by bitcoin developer Jimmy Song, launched in November 2017 as part of the Central Bank of Bahrain’s FinTech sandbox. But restraints in the sandbox have limited Rain’s operational capabilities, prompting it to move to full operations. The Gulf is a conservative environment that has been notably hard on cryptocurrency startups due to the lack of global regulations, high-profile thefts of crypto assets, and extreme market volatility.
In one recent case, Dubai police arrested a gang that stole seven million dirhams ($1,905,785 USD) by deceiving and kidnapping two brothers. The brothers were reportedly interested in buying bitcoin in a peer-to-peer transaction and were assaulted upon entering an office. The gang of 10 were arrested within 48 hours of the heist.
Successfully obtaining the license would reportedly make Rain the first crypto exchange to operate in the Persian Gulf to be regulated by a central bank. There are at least five other exchanges in the sandbox with Rain, but Rain was the first to enter the regulatory development space and is slated to be the first to exit.
Licensure across the region, however, is far from a sure thing. Saudi Arabia, for example, issued a statement in August that said: “Virtual currency including, for example but not limited to, the Bitcoins are not approved as official currencies in the kingdom and no parties or individuals are licensed for such practices by regulators in the kingdom.”
Cryptocurrency adoption in the Middle East is also hampered by the belief of observant Muslims. Sharia law tenets advocate commerce based on the trade of tangible assets or acts of labor – economics based on speculation or on interest are typically frowned on. While cryptocurrency has not been outright banned in Saudi Arabia and the UAE, there have been warnings and open hostility against its use. To accommodate this, the region has seen the emergence of gold-backed cryptocurrencies, such as OneGram, which claims that each coin is backed by a gram of gold.
With the countries of the GCC producing approximately eight percent of the world’s gross domestic product, there are ample reasons to establish a licensed crypto exchange in the area. However, as Rain is not the first to attempt this, only time will tell whether it succeeds.
Frederick Reese is a politics and cryptocurrency reporter based in New York. He is also a former teacher, an early adopter of bitcoin and Litecoin, and an enthusiast of all things geeky and nerdy.
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