Last week, Binance secured a $2billion investment from MGX, the new technology investment company created by United Arab Emirates (UAE) sovereign wealth fund Mubadala Investment and AI firm G42.
Mubadala, one of the most active sovereign wealth funds in the Middle East, manages around $230billion in assets under management. For at least the last 15 years, it has been diversifying away from oil – but this Binance news signifies a significant shift towards virtual assets, instead of the more traditional investment avenues – such as real estate, manufacturing, and healthcare, which historically pay a small average return.
MGX’s investment, which is the largest in a crypto company to date, is funded by the Abu Dhabi government. While the government has invested in virtual assets before, through the creation of its own smaller crypto exchanges or platforms, this $2billion statement highlights that it is now fully committed to the virtual assets space.
While it’s fair to assume that this news could kickstart a new trend that sees more investment directed into other virtual asset firms, it’s important to note that this had already begun prior to MGX’s investment. Investment funds based in Europe are setting more and more budget aside for virtual assets and Web3.
Looking to the future, I expect to see increased appetite from local family offices and other venture capital funds for blockchain and virtual assets, as well as Web3 and AI. These private family offices and holding companies will likely see this huge government-backed investment as confirmation that investing in these sub-sectors is the way to go – and that new-age finance is not going away.
Unsurprisingly, these investment firms want to find the next up-and-coming the next unicorn in the Middle East (essentially the next Tabby or Careem). The old attitude of being content with passive, slower, steady investment returns is definitely changing. These firms want larger and faster returns and they know that the virtual assets space is where they can get them.
Getting the regulation right
Meanwhile, an increasing number of firms focused on tokenisation are coming from Europe and securing licences from the Virtual Assets Regulatory Authority (VARA) in Dubai. These trends highlight that the entire virtual asset ecosystem is rapidly maturing – something that these local investors are quickly recognising.
However, as the region becomes more attractive to prospective fintechs and digital asset companies, the regulatory landscape becomes more difficult to police.
In November 2023, VARA revealed that over 1,000 companies had submitted requests for registration under Dubai’s regulatory structure. This shows just how quickly the virtual assets space is evolving – but the regulator remains very small in size. Despite the rapid growth of the virtual asset ecosystem in the Middle East, the regulators surrounding the space will need to expand as quickly as the industry is to ensure it remains on the right track.
The local government wants to welcome these companies as quickly as possible but it has to ensure there’s a balance between enabling innovation and ensuring consumer protections. There’s a very fine line between the two – it’s all well and good to have the ambitions to become the biggest and best in the world, but reputational risk is a huge factor.
Attracting talent: but where from?
From my experience in recruitment, I’ve seen a big focus on encouraging ready-made talent from overseas – more so than upskilling existing talent already present in the UAE. While upskilling initiatives do exist, it’s still seen as a much safer bet to attract experienced talent who can advance the local ecosystem; especially when trying to fill roles in sales or technology.
Despite this, the same cannot always be said for regulations, compliance, or anything else with more associated risks. In these cases, it’s more preferred that they attract talent that has already obtained experience in these areas – and ideal candidates will already reside in the country and be used to the existing regulated framework. This can prove more difficult than the alternative, as the talent pool of these individuals is much smaller – meaning that this could become a roadblock for the regulators overseeing the quickly expanding virtual assets space.
Looking to the future
Ultimately, I expect everything related to virtual assets to blow up (in a good way!). While there will be challenges, the regulators could eventually triple in size; while the number of virtual asset companies present in the region will also continue to increase exponentially.
But with this rapid growth and the nature of the risk associated with these companies, it’s also fair to expect some sort of high-profile disaster. Who knows whether it’ll be another significant hack, or something else, or whether it will occur within the Middle East or elsewhere overseas, it seems almost certain to me that something could reduce confidence in the space.
However, even if this kind of event occurs, I don’t think it will have a significant impact on the level of investment in this sector – which is exactly why I think this growth is here to stay.
