Dubai: While the UAE doesn't recognize Bitcoin as a legal form of tender, there are means to trade them. (The only legal tender in the UAE is the UAE dirham.)
Bitcoin, considered the most liquid cryptocurrency, involves accessing a cryptocurrency exchange that allows UAE residents to open accounts and trade using them. Among other cryptocurrencies, Bitcoin is one that is universally accepted and works for the purchase of virtually all cryptocurrencies.
Choosing a secure Bitcoin wallet
But before you buy Bitcoin or any other cryptocurrency for that matter, it's crucial to have a secure form of storage. Popular hardware wallet choices among UAE residents include the likes of Ledger Nano S or the Trezor. Cold storage hardware wallets are widely accepted as the ideal way to protect your coins.
Many Bitcoin exchanges offer built-in wallets, but they're centralised and as a consequence, vulnerable to theft. Once you have chosen a reliable wallet, the next steps involve choosing a suitable cryptocurrency exchange that involves verifying your identity for some transactions, which varies with each broker as detailed below, and finally buying and trading Bitcoin.
While buying Bitcoin in the UAE is easy, what matters most is the broker or exchange you select. Opening an account at a cryptocurrency exchange is the first step to buying Bitcoin in the UAE. You must also get a crypto wallet to store your Bitcoins, make purchases and receive gifts.
However, let’s first walk through what one should weigh when choosing a suitable cryptocurrency trading platform in the UAE, in detail.
Choosing a suitable cryptocurrency trading platform
Multiple UAE-based cryptocurrency exchanges offer bitcoins, as well as a number of other digital currencies. Analysts cite low tax rate, regulatory environment and political stability, as reasons why a number of exchanges and digital currencies base themselves in the Emirates.
Additionally, official support for cryptocurrencies makes bitcoins an attractive investment, although their values can fluctuate dramatically relative to national currencies.
You can use local exchanges or select one of the many international exchanges that accept accounts from the Emirates. In addition, sites such as localbitcoins.com publish local buyers and sellers in the UAE, along with payment methods and bid and offer prices.
Many Middle East-based investors may prefer to use a regional cryptocurrency exchange, rather than one based in countries such as the US or Europe. Many foreign-based exchanges, such as the US-based CoinBase, don’t allow people based outside of certain geographic areas to trade on their platforms.
Here are a few UAE-based and international cryptocurrency exchanges that accept accounts from UAE nationals and residents, and a brief overview about each of them, and what to keep in mind about each:
BitOasis, founded in 2015 and based in Dubai, is one of the largest cryptocurrency exchanges in the Middle East, particularly for trading Bitcoin, among other cryptocurrencies it avails the option to trade. BitOasis allows transactions in USD and AED as well as the use of local credit cards, while also providing an option for users to store cryptocurrencies on its platform through online web wallets.
Keep in mind that the exchange requires a minimum deposit of Dh300 that can be accepted via bank transfer or cash deposit. Apart from the UAE, it is also accessed in Saudi Arabia, Oman, Qatar, Kuwait, and Bahrain. UAE clients may also deposit funds via exchange houses.
While the platform is considered among the most popular means to buy Bitcoins in the countries it services, some of the other perks include multi-signature security measures, which requires more than one signature to transfer funds – enhancing security.
Moreover, while there are no registration fees, but users will be charged a 0.5 per cent flat fee to deposit, withdraw and trade, on all orders, vital to note that verification is not required for amounts below $500 (Dh1,836) per week. However, for amounts above the week limit of $500 (Dh1,836), transactions are no longer private since identity verification is required.
Among the newer cryptocurrency exchanges, Palmex – established in 2018 – is also based in Dubai. While the website claims site claims comparatively better security standards and minimal trading fees, the firm does not accept fiat currency for deposit, so you must open an account with Bitcoin or other accepted cryptocurrencies.
What this means is Fiat money does not have use value, and has value only because a government maintains its value, or because parties engaging in exchange agree on its value.
Fiat money gives central banks greater control over the economy because they can control how much money is printed. Most modern paper currencies, such as the US dollar, are fiat currencies.
When using Palmex, the ‘Taker’ fee is 0.40 per cent upto $200,000 (Dh734,598) trading volume for Bitcoin, while the ‘Maker’ fee is 0.25 per cent for trading volume upto $200,000 (Dh734,598).
What are Maker and Taker fees?
When a market charges Taker and Maker fees, they differentiate whether you're increasing the size of the order book or decreasing the size of the order book.
When you create an order that is immediately matched with already existing orders, you're a Taker because you take liquidity from the market. When you add an order that doesn't match existing offers, you add liquidity to the market and are charged a Maker fee.
While a trade order gets the Maker fee if the trade order is not matched immediately against an order already on the order book, which adds liquidity, a trade order gets the Taker fee if the trade order is matched immediately against an order already on the order book, which removes liquidity.
Simply put, a maker fee is when you create an order on the order book (this could be a buy or a sell) and someone else completes it, therefore you pay no fees and get the amount paid. The one that completed your order pays the fee. The other way around, if you sell into an order already posted, you pay the fee, and they do not.
Within eight months of launching in July 2017, HK-based Binance quickly skyrocketed into the world's largest cryptocurrency exchange by trading volume, processing more than $1 billion (Dh3.67 billion) on a daily basis.
Binance has a trading fee structure that is based upon 30-day trading volume or 24-hour Binance Coin holdings. The cryptocurrency traders are categorized into VIP Levels, ranging from Level 0 to Level 9.
Trading fees range from 0.1 per cent for Maker and Taker to 0.02 per cent / 0.04 per cent, depending upon VIP level status. Additionally, both Maker and Taker can receive a 25 per cent discount by using Binance Coin instead.
Binance facilitates the deposit and withdrawal of funds in crypto and fiat money. For users who don’t pre-own Binance supported cryptocurrencies, you can purchase cryptocurrencies by credit or debit card, cash balances, or by third-party payments.
While there isn’t any deposit fees charged, there is withdrawal fees of 0.15 per cent, with a minimum of 3 euros (Dh13.31) and a maximum of 15 euros (Dh66.57). The trading fees average at 0.1 per cent.
Kraken is the one of the world's largest cryptocurrency exchanges, and the largest in Europe based on daily average trading volume. Founded mid-2011, it is available in almost all countries. Deposits can be made via bank wire and SWIFT.
While the platform charges a comparatively lower 0.25 per cent Taker fee, falling to 0.1 per cent with sufficient trading volume, it also offers a low Maker fee, falling to zero per cent with sufficient trading volume. Among surveyors and matter researchers, it is highly-rated for security and data protection. However, it requires ID verification, so it is not considered to be private.
The user interface is considered to be much more complex for newbie Bitcoin traders. Kraken’s trading fees are somewhat below average and they begin to drop quickly once a trader starts doing more than $50,000 (Dh183,649) a month in volume.
Traders on Kraken who do less than $50,000 (Dh183,649) in monthly volume can expect to pay a 0.16 per cent Maker fee and a 0.26 per cent Taker fee. There are progressive discounts for increased trade volume and these top out at $10 million (Dh36 million) a month at which point a trader pays no Maker fee and just a 0.10 per cent Taker fee.
As Kraken is based in the US, and must comply with the country’s regulations, they only offer about 20 coins for trade, which compared to Binance that offers more than 100. Kraken’s withdrawal fees are typical of most exchanges.
It’s possible to open an account on Kraken and trade cryptocurrencies without undergoing KYC, which in simple terms is having your identification details approved and verified.
However, the withdrawal limits on such accounts are low and it’s not possible to deposit or withdraw Fiat without a KYC verified account. Anyone wishing to trade futures contracts will also need to undergo a KYC verification.
Buying and trading Bitcoin in the UAE
After opening an account with a suitable platform, one then buys Bitcoins and adds it to one of the wallets mentioned initially.
You can use Bitcoin ATMs to buy bitcoins with cash. Bitcoin ATMs can be a quick and easy way to buy bitcoins and they're also private.
However, that convenience and privacy, comes with a price; most ATMs have fees of 5 per cent to 10 per cent. You'll need to send Bitcoin from your wallet to the wallet address provided by the Bitcoin ATM. From there, you'll be able to withdraw your funds.
• Trading Bitcoin
There are two ways to trade Bitcoin: Buy the cryptocurrency itself in the hope of selling it on at a profit, or speculate on its value without ever owning the token. The latter is how CFDs work.
CFDs are leveraged products, meaning you can put down a small initial deposit and still gain the exposure of a much larger position. This can magnify your profits, though it can have the same effect on your losses.
To trade, when simply put, one first finds a suitable opportunity or price of Bitcoin to trade, takes a position – which generally means to determine whether or not the price will rise or fall, and lastly all that is left is to monitor your trade and take a call whether to buy or sell.
When you trade cryptocurrency, you’re speculating on whether the Bitcoin’s price will go up or down. Increase your exposure to Bitcoin with leverage (using borrowed funds to increase one's trading position) and go long or short on the price – all without the expense of an exchange account.
• Formulating a trading plan
Having a trading plan is crucial to success for any trader but even more so for Bitcoin traders because the market can see high amounts of volatility, given that volatility makes the market extremely attractive, but difficult to trade.
This is why your trading plan should include ways to manage risk, by outlining your goals and a methodology for entering and exiting trades – known as a trading strategy.
Here’s an article that details different trading strategies that you would need to decide on before proceeding ahead with trading, like whether you plan on Day Trading Bitcoin, or Swing Trading, Scalping and Automated Trading.
Once you have chosen a trading strategy, if you’re new to the markets you might want to consider a trading plan as well. A trading plan can help you make objective decisions even when the stake are high, so that you don’t leave trades open too long – or close them too early.
Some tips, from analysts at UK-based brokerage IG Group, for creating a trading plan is to set out what you want to achieve from your trading, broken down into short and long-term goals.
Also the analysts suggest you decide your acceptable risk from each trade, as well as how much you are willing to risk overall, while recommending that you should also pick a risk-reward ratio, so you know how much potential profit you need to justify your potential loss.
What is risk-reward ratio? The risk-reward ratio measures how much your potential reward is, for every dirham you risk. For example, if you have a risk-reward ratio of 1:3, it means you’re risking Dh1 to potentially make Dh3. It is measured in a straightforward mathematical calculation: where the price at the start of the trade is subtracted from the price at the end of the time period of the trade, with the subtracted amount divided by the starting price.
While choosing which markets you want to trade Bitcoin, your trading plan should also include the way you will analyse the Bitcoin market: either through technical or fundamental analysis.
Whichever method you choose, it is important to remain up to date with any news that could impact the market, as cryptocurrencies are especially sensitive to market sentiment.
• Placing the trade
To place a trade, you will enter the amount you want to stake on your trade in the ‘deal ticket’. (A deal ticket, commonly known as a trading ticket, is a record of all the terms, conditions, and basic information of a trade agreement.)
You can also define your close conditions: set a stop to close your position when the market moves against you by a certain amount, or a limit for when it moves in your favour. Stops and limits are central to good risk management. If you expect bitcoin to rise in value, you'll then ‘buy’ the market. If you think it will fall, you'll ‘sell.’
To close your position, you simply place the reverse of your original trade. So if you bought in the first instance, you’ll sell the same amount; if you sold, you’ll now buy.
Other helpful points to keep in mind
• Bitcoin trading, unlike some other assets, are open 24 hours a day, 7 days a week except for Saturday from 2am to 12pm (UAE time). Market holidays may change these hours.
• While ‘XBT’ is the official ticker symbol of Bitcoin – with an ‘X’ to denote its international status – ‘BTC’ is often used to represent the cryptocurrency, and is recognised by most trading platforms and search engines.
• You can apply alerts to bitcoin price movements just as you can to any other market. Log in to the platform, go to a Bitcoin market’s deal ticket and define your parameters. Enter a message if you’d like to remind yourself why you’ve enabled this alert, and click ‘set alert.’