The virtual currency market has emerged in the United Arab Emirates with Dubai’s first Bitcoin ATM introduced in April 2014. Middle East entrepreneurs have begun launching Bitcoin payment products and SMEs are beginning to realise the potential of such technology, with The Pizza Guys becoming the first restaurant in the UAE to accept Bitcoin payments.
Virtual currencies, such as Bitcoin, combine financial and technological instruments and incorporate characteristics of money, accounting, networks and remittances into one concept. As this innovative concept gains momentum, there is a heightened focus on the regulatory framework to reduce the operational and systemic risks associated with the virtual currency industry, and to protect consumers from financial harm is paramount to ensure the survival of a multibillion-dollar system with more than one million users.
Regulating Virtual Currencies
The New York State Department of Financial Services (NYSDFS) is pioneering regulation in the cryptocurrencies industry. NYSDFS released its proposed regulations governing the use of virtual currencies in New York. Drawing heavily from New York’s banking industry regulations; the strict regulatory regime is set to drastically change the business practices of those currently operating under the virtual currency model. NYSDFS has defined “virtual currency” as digital units that are either used as: a medium of exchange or a form of digitally stored value; or incorporated into payment system technology.
Most recently, the U.S. Commodity Futures Trading Commission (CFTC) acknowledged the increasing number of merchants accepting Bitcoin as payment for goods and services and that these merchants face considerable risk due to price fluctuations in the value of virtual currencies. October 2014 saw TeraExchange, a swap execution facility (SEF) regulated by the CFTC, offer for trading the first Bitcoin swap to be listed on a CFTC-regulated platform. CFTC noted that TeraExchange’s development of a proprietary Bitcoin price index was central to the CFTC’s review and approval, particularly with respect to the contract’s ability to comply with SEF Core Principle Three, which prohibits SEFs from listing contracts that a readily susceptible to manipulation.
As the virtual currency industry continues apace despite some challenges, regulators and agencies in the US and other markets strive to find the right balance between fostering innovation and implementing regulations. Ultimately, the development and global expansion of virtual currency markets hinges on an effective regulatory regime that can protect consumers from fraud and cybercrime.
As Bitcoin and other virtual currencies continue to grow, and as US regulators pave the way for drafting a virtual currency regulatory framework, it remains to be seen how the United Arab Emirates will develop its own policies that govern cryptocurrencies.
Click here to read more about NYSDFS’ proposed regulations for virtual currencies.
Click here to read more about the first Bitcoin swap listed on a CFTC-regulated platform.