Over the past decade with the palpable rise in price and popularity of cryptocurrencies around the world, two often intertwined structural factors seem to have generally influenced individual and institutional decisions to adopt crypto as an emerging unconventional source of wealth: access to technology for infrastructural innovation and entrepreneurship which lies at the heart of its supply side, and lack of access to conventional economic resources which arguably underpins the demand side of crypto economy.
While this broad frame of analysis is admittedly far from clear cut or conclusive, it may serve as an initial step towards understanding the international political economy of cryptocurrencies and explaining why the new decentralized “digital money” has been more conveniently embraced in certain parts of the world than in others. It is therefore pretty predictable that crypto adoption in developed economies with a relatively higher level of social welfare and political liberties (broadly known as the Global North) represents different dynamics and calculi from underdeveloped and developing nations (or the Global South) where other types of factors prevail and drive crypto decisions.
Crypto Across the Middle East
When it comes to cryptocurrencies, the wider Middle East and North Africa (MENA) region offers as colorful a picture as it has when it comes to political governance, capturing the international political complexity associated with the young digital currency industry.
In war-ravaged Afghanistan, locals are reported to be increasingly resorting to “stablecoins.”
In war-ravaged Afghanistan, following the “messy” US withdrawal and the Taliban’s surprisingly simultaneous takeover of the capital Kabul in August 2021, locals are reported to be increasingly resorting to “stablecoins,” a type of reserve cryptocurrency — such as USD Tether (USDT) and Binance USD (BUSD) — pegged to the US dollar or other hard currencies to shield against high price volatility in the crypto market, as a novel, virtual means to protect their savings from value loss or Taliban confiscation. Crypto channels and transactions are also used by international aid agencies and overseas-based NGOs like Code to Inspire to transfer much needed financial assistance to poor families in the impoverished country, which is then converted into Afghani, the local currency, and cashed out at local exchange offices.
The new method of borderless donation and money transfer has gained popularity.
The new method of borderless donation and money transfer, mainly used to evade foreign sanctions as well as domestic restrictions, has gained particular prominence since the Russian invasion of Ukraine in February this year. Kyiv has not only received tens of millions in crypto funds from international donors, but the Ukrainian government has also officially set up online accounts to facilitate and sustain the crowdfunding.
Yet, this 24/7 decentralized system of value creation and transaction — made possible by the famed blockchain technology and with a global market cap of over 1.2 trillion at the time of writing — is more systematically used by states that have been isolated from global financial markets and banking services for political and security reasons. The Islamic Republic of Iran, for example, whose whole economy has labored under wide ranging American sanctions over its controversial nuclear activities in recent years, is a telling case in point.
The Iranian government has announced opposition to cryptocurrency payments and continues to crack down on crypto mining. Yet, with its restive society frantically searching for innovative ways of economic entrepreneurship and job creation, Iran now stands among the top miners of Bitcoin, thanks in important part to an abundance of energy resources and cheap electricity in the country. According to Elliptic, a crypto analytics firm, it accounts for 4.5 percent of all Bitcoin being mined in the world, estimated to yielda revenue of around $1 billion a year. Tehran can use this revenue to lessen the adverse effects of sanctions and engage in otherwise restricted financial transactions for imports and exports.
The Iranian government has announced opposition to cryptocurrency payments.
The Islamic government’s continued crackdown on independent crypto exchanges on the one hand and its plans to introduce a “digital national currency” on the other suggest long term intentions to capitalize on the unconventional money industry, but to keep it under strict state control. On top of these domestic obstacles, denial of access to major crypto exchange platforms such as Binance, Kraken, FTX, and Coinbase due to tough US sanctions makes it particularly difficult for many Iranians to rely on crypto trading and technology for economic gain.
It is perhaps the absence of these hurdles and hindrances, not the least of which are international sanctions, that have helped make Turkey and especially the United Arab Emirates’ (UAE) fertile grounds for crypto entrepreneurship to thrive, compared to other MENA nations. Both governments, much like their peers elsewhere, are making legal arrangements to regulate the growing crypto market boosted by free public access to key exchanges and trading apps.
The UAE is the chief crypto hub of the wider Middle East region.
Yet, if the crypto boom in Turkey is mainly driven by continued devaluation in recent years of the Turkish lira and mounting economic woes under President Recep Tayyip Erdogan’s Justice and Development Party (AKP), the rapid rise in crypto popularity in the Emirates seems to be more an outcome of state openness and support for foreign financial investment. This year alone, Abu Dhabi and Dubai, the sheikhdom’s major trade centers, have issued over 30 licenses for crypto operations and exchanges to open offices in the city emirates, consolidating the UAE’s status as the chief crypto hub of the wider Middle East region.
Crypto Technology and Terrorism?
Much as crypto adoption is relied upon by marginalized communities around the world who aspire to lift themselves out of poverty and gain a meaningful stake in their local economies, its anonymity-enabling technology may be exploited by outlawed groups to fund terrorist and criminal activities in barely traceable ways. In August 2020, the US Department of Justice announced seizure of millions of dollars’ worth of cryptocurrency across over 300 accounts associated with terrorist organizations such as the Islamic State (IS) and al-Qaeda. In summer 2021, the UK police arrested a sales consultant sympathetic to IS in Birmingham, who was later convicted of transferring over $60,000 (£50,000) to human traffickers in Syria to help release members of the terrorist group from jail there.
Whether resorted to by individuals as an emerging hedge against currency volatilities, used by states to circumvent international sanctions and restrictions, or relied upon by local investors for economic entrepreneurship and community empowerment purposes, the crypto industry much like conventional markets is already intricately intertwined with politics and susceptible to political decisions. And the Middle East is no exception.