Dubai: A volatile asset on the charts, and a buzzword on the streets, bitcoin has garnered everyone’s attention from the UAE’s Central Bank governor to the chief executives of the world’s largest banks.
And with no two authorities reaching consensus on their views of the currencies, legal experts say the best way to describe trade of bitcoin in the UAE would be as a “tolerated practice.”
By “tolerated practice,” they mean one that is legally prohibited according to the UAE Central Bank’s regulations, but one where regulators take no measures against those who practice it (i.e. those who buy or sell bitcoin and other virtual currencies).
“The Central Bank issued in January 2017 Stored Value Regulations, which contained a blanket prohibition of virtual currencies and transacting in virtual currencies. The term ‘virtual currencies’ as defined in the Central Bank regulations includes bitcoin and other currencies that are used as a medium of exchange,” said Sally Sfeir-Tait, partner at Clyde & Co, the international law firm.
She pointed, however, that there is no one definition of a virtual currency as that depends on how a virtual currency functions (whether as a security, commodity, or currency).
Central Bank regulations
Earlier this year, a new set of regulations from the UAE’s Central Bank said “all virtual currencies [and transactions thereof] are prohibited.”
However, when contacted by Gulf News at the time for more details, Mubarak Al Mansouri, governor of the Central Bank, said these regulations do not cover virtual currencies such as bitcoin.
He defined a virtual currency as “any type of digital unit used as a medium of exchange, a unit of account, or a form of stored value.”
“In this context, these regulations do not apply to bitcoin or other cryptocurrencies, currency exchanges, or underlying technology such as blockchain,” he told Gulf News in January.
And that’s where some of confusion stems from; Central Bank regulations prohibiting virtual currencies, the governor saying the regulations do not apply to bitcoin, and companies in the midst of that still accepting bitcoin as a currency.
In September this year, Dubai-based Fam Properties said it will start accepting bitcoin payments for residential property rental within a new development. Similarly, the Knox Group of Companies, based in the Isle of Man, said in September it is launching a project in Dubai where residences can be bought in bitcoin.
But on Monday, Central Bank governor Al Mansouri warned against bitcoin, terming it as unofficial and lacking sufficient supervision, according to a WAM report. He said bitcoin “can be easily used in money laundering and in funding terror activities.”
And that’s one of the reasons banks are treating bitcoin as a high risk asset, said Sfeir-Tait who has been legally advising in the ICO (Initial Coin Offering) space for some time.
“There is no one-size-fits-all approach to bitcoin and other virtual currencies. If you see (International Monetary Fund managing director) Christine Lagarde’s speech at the Bank of England last month, she was positive about the new digital economy that is being created,” she said.
Sfeir-Tait added, “If, however, we look at bitcoin and other virtual currencies that can be used to purchase any goods and services, then it is perfectly understandable that regulators want to make sure that such digital assets are captured by the same [anti-money laundering and counter-terrorism financing act] legislation as traditional currencies so that they are not used for illicit purposes.”
Additionally, some investors are worried about their money in bitcoin exchanges such as BitOasis in the UAE. An email sent to Ola Doudin, CEO and co-founder of BitOasis, the UAE’s first digital currency exchange, was unanswered.
For others who invest in it, though, it’s only a matter of time before bitcoin becomes mainstream.
Deepak Machado, a certified bitcoin professional who has been trading the currency for around a year, said he expects Bitcoin to be as widely accepted as any other currency in the future.
“If you are risk averse, bitcoin or any other cryptocurrency is not for you. The main risk is that of volatility and those that surround government policies…bitcoin plummeted when China banned ICOs and exchanges, but value has doubled since. It’s only a matter of time for other countries to embrace it. Many countries have not [made it] illegal to transact in bitcoin and many developed countries have no problems with it,” he said.