Abu Dhabi’s Mubadala throws support behind cryptocurrencies

Dubai: Amid what it described as “challenging market conditions,” Abu Dhabi sovereign wealth fund Mubadala Investment Capital has just thrown its support behind an unlikely candidate: cryptocurrencies.

The company earlier this month announced it has invested through its ventures arm in MidChains, a crypto asset exchange that will launch operations in late 2019 in Abu Dhabi. The move comes as Mubadala boosts its investments into the technology sector where it sees strong opportunities.

The deal marks one of the first instances where Mubadala has invested directly into a digital asset company in the Middle East. It described the digital asset space as “one [to] watch,” saying that it believes MidChains has what it takes to succeed despite bumps in the road.

The founders of MidChains said they were in talks with Mubadala for about a year before they finalised the deal. While they did not disclose the value of the investment, they said it was a seven-figure number in US dollars.

“Mubadala has always been a pioneer in the technology space and wants to become a pioneer in investing in new technologies,” said Mohammad Al Hashemi, co-founder of MidChains.

“They’ve been very close to us, they like the story, we’re from Abu Dhabi, it’s exciting to see something growing from Abu Dhabi on a global scale by local talent, and they’ve been quite supportive, to say the least. They’re firm supporters that we’re going to make it as a team and as a company in this new space.”

Al Hashemi cofounded MidChains with Basil Al Askari, who now also serves as the company’s chief executive officer. Both founders are Emiratis with a background in financial services.

Regulations

With the upcoming launch of their company, they’re aiming to set up an exchange for cryptocurrencies in Abu Dhabi, where they are based at Abu Dhabi Global Market (ADGM). While authorities in the UAE do not regulate cryptocurrencies, ADGM as an offshore jurisdiction launched last year a crypto asset regulatory framework that includes governance and oversight on the asset class.

“We’re an exchange. You can think of it similar to a stock exchange, but where you’re trading equities, for us, it would be crypto. We also perform custody activities, which means we also can store, settle, and clear crypto transactions on behalf of our clients,” Al Askari told Gulf News in an interview.

MidChains in May 2019 received approval from ADGM’s Financial Services Regulatory Authority to operate a crypto exchange, meaning its platform, when launched, will be fully regulated by the Authority.

And Al Askari says that regulation is key to allow cryptos to flow into the mainstream. In the UAE, institutions have been wary of cryptos over the past few years, shying away from setting up any crypto trading desks.

“If I bring this down to the GCC, I think that there is a hesitation and there is a lot of white space still available. I think if investor concerns are addressed, and the chief concern being oversight … then appetite will increase in the region,” he said.

“At the end of the day, people are comfortable with existing investment asset classes because adequate oversight is there, and we’re starting to see that adequate oversight come into the crypto space.”

International traction

Internationally, cryptos are starting to gain mainstream traction. After dismissing them during the bull run in 2017, banking giant JP Morgan has now created its own cryptocurrency. Meanwhile, Goldman Sachs is recruiting a team specifically for cryptos, and Fidelity Investments launched a crypto arm.

“It’s a good sign,” Al Askari says of the interest from the big banks. “I would say that we’re on track globally for institutional participation.”

From the retail investors, appetite is developing for cryptos, especially as they make another bull run in 2019, and the founders of MidChains believe that interest will continue to grow.

For now, it says that those who have expressed interest in using MidChains’ platform to trade are based outside the UAE. And those who do want to trade believe that the asset class is here to stay.

That’s not to say it will stay as a mainstream currency.

Al Askari, much like many of those who trade cryptos, says he views Bitcoin, for example, as a new investment class, rather than a replacement for the US dollar or any other fiat currency.

With the investment from Mubadala now secured, MidChains said it will be looking to raise further capital later this year, and is already in touch with some investors to do so, including large institutional US investors. While the founders said they could not name any of those they were in touch with, they said that they were institutions dealing with traditional asset classes.

MidChains does not take any stances on the price outlook for any cryptos, and is merely an exchange platform to trade them.

The announcement of an investment from Mubadala into start-up Midchains came just days after it reported its financial performance for 2018 and described the last year as challenging, with volatile equities and uncertain yields. It also said it was looking to invest at various industries, including technology where disruption “is creating the potential for value across all sectors, which is an opportunity for us to deepen our position as a major global investor.”

Khaldoon Al Mubarak, group chief executive officer and managing director of Mubadala, said at the time of reporting performance that the company is “activating its investments and relationships to establish Abu Dhabi as the technology hub for the Middle East and North Africa region.”