Kuwait Faces Crypto Conundrum as Neighbours Forge Ahead

The cryptocurrency market has been hit by significant fluctuations recently, with Bitcoin (BTC) dropping 4% to a three-week low of $59,400. Other cryptocurrencies such as Solana (SOL) and Dogecoin are also experiencing declines, highlighting the risks associated with the sector.

Regional policies and geopolitical tensions have further muddied the picture in the Middle East, complicating crypto adoption and innovation.

Crypto Conflict Abounds in the Middle East

It would be fair to say that most of the youthful and tech-savvy population in the Middle East are eager to embrace innovation. The economic structures in the region, which are over-reliant on volatile oil prices, make diversifying into crypto an attractive option.

However, the region suffers from political instability, strict government regulations and a political class refusing to be weaned off its trust in traditional financial institutions. Consequently, some countries in the Middle East are open to adopting cryptocurrency, while others are taking a more cautious stance.

For instance, the United Arab Emirates (UAE) is pursuing blockchain and crypto initiatives to position itself as a digital finance hub. The UAE has started licensing and regulating Dirham-backed stablecoins under the Financial Infrastructure Transformation (FIT) program. Vendors can now use and accept Dirham-backed stablecoins for their goods and services. It will be a virtual payment token.

Meanwhile, Dubai launched the Dubai Blockchain Strategy to encourage the adoption of blockchain technology across government and private sectors. Saudi Arabia has also embraced crypto, partnering with international entities to advance its ecosystem. However, the volatility of cryptocurrencies is a risk.

The recent market fluctuations of BTC and the sharper decline of other popular altcoins reflect this danger. BTC fell 5.73% last week. Nearly $312 million in daily liquidations were recorded.

These fluctuations are concerning for Middle Eastern investors and regulators. They must balance the potential benefits of cryptocurrencies with the risks associated with their volatility.

Kuwait’s Conservative Approach Could be Costly

Kuwait placed an absolute ban on crypto payments and mining in 2023. The decision has serious implications for its economy and position relative to neighbouring countries. The Capital Markets Authority announced the ban was to combat money laundering, warning that violations would result in penalties.

Industries that would typically embrace the crypto revolution have steered clear to avoid problems with the government. One of the most examples is the iGaming sector. Crypto payments are one of the more modern ways online casinos receive deposits and pay out winnings. They promise speed, security and anonymity, which is perfect for the online gambling industry.

However, real money online casinos in Kuwait have been forced to stick with the traditional payment systems, which are less volatile. This makes iGaming platforms less appealing to the younger Arab demographic.

From an economic perspective, the crypto ban may be a sensible stance to take. However, Kuwait undoubtedly risks being left behind by its neighbours if crypto stabilises and becomes mainstream. Improved regulation could be a game-changer in this regard and Kuwait must carefully consider whether their outright ban is appropriate.

Geopolitical Tensions Influence the Crypto Markets

The geopolitics of the Middle East also plays a role in the viability of cryptocurrency. International conflicts typically influence the financial markets, and crypto is no different. The recent decline in the value of crypto tokens was related to recent tensions in the Middle East. This shows the region’s influence on the global crypto market.

The volatility is concerning for investors, but it also highlights how crypto can be used as a hedge against political instability. For example, several studies showed investors favoured safe-haven crypto assets over Rubles immediately after Russia invaded Ukraine.

However, the crypto market is still in its infancy and highly subject to volatility. Some cryptocurrency tokens are safe-haven assets, but they may not be wise to bank on in another geopolitical event. The interplay between geopolitics and crypto is quite complex, with very little research examining the relationship. Tensions can introduce volatility into the cryptocurrency market, but crypto also serves as a hedge against traditional assets.

Countries in the Middle East face some big decisions regarding crypto over the next few years and it will be intriguing to see which ones fall on the successful side of the line.