The Middle East and North Africa is the sixth largest crypto economy we studied this year (Cryptocurrency Geography Report 2023). Between July 2022 and June 2023, the value of on-chain transactions in the region was approximately $389.8 billion, accounting for nearly 7.2 percent of global transactions.

Middle East and North Africa region holds three of the top 30 countries in this year's index: Turkey (12th), Morocco (20th) and Iran (28th). Among them, Turkey dominates in terms of volume.

Overall, broken down by deal size and platform type, trading volumes in the MENA region are similar to other regions.

However, we see significant differences between different countries in the region. Refer to the heat map below, which compares the activity of some of the top crypto economies in the MENA region last year by platform type.

The most prominent is the United Arab Emirates. Compared to its regional neighbors with the exception of Israel, the UAE has a much higher percentage of cryptocurrency activity on DeFi. One reason may be that the UAE has turned itself into the cryptocurrency hub of the world by adopting an innovation-friendly regulatory framework that has enabled breakthrough crypto platforms to thrive. These regulatory frameworks have attracted many cryptocurrency entrepreneurs and enthusiasts to the region, which may be why DeFi is seeing more adoption there.

On the other hand, crypto activity in Turkey is more concentrated on centralized exchanges, as its users seem to be more focused on acquiring cryptocurrencies to combat currency depreciation. We'll explore these trends and more below.

United Arab Emirates (UAE) : How can forward-thinking regulators shape the global cryptocurrency hub

Thanks to its unique innovation-friendly regulatory policies, the UAE attracts top financiers, young tech entrepreneurs and innovative companies from across the globe. The UAE is also a leader in adopting advanced technologies to help make businesses more efficient and improve the quality of life of its citizens, as is blockchain technology.

Regulators in the UAE have been paying attention to cryptocurrencies for an early period, with Dubai, the country's most populous city, first launching a blockchain strategy in 2016. Since then, UAE regulators have been at the forefront of the industry. In 2018, ABU Dhabi established the world's first regulatory framework for cryptocurrencies, with the goal of establishing a forward-looking regulatory framework for cryptocurrencies that protects consumers while promoting innovation and ensuring that the UAE remains a leader in the cryptocurrency space. Dubai established its own Virtual Asset Regulatory Authority (VARA) in 2022 with a similar goal in mind. Earlier this year, the UAE passed further crypto regulations at the federal government level, giving local regulators such as VARA the flexibility to regulate and maintain economic free zones to attract cryptocurrency innovation.

We spoke with Akos Erzse to find out more about how regulators such as VARA are creating a vibrant environment for cryptocurrency businesses to operate in the UAE. Erzse is the senior manager of public policy at BitOasis, a Dubai-based cryptocurrency trading platform. He praised the comprehensive regulatory framework released by VARA in February 2023, "which has brought new momentum to forward-looking regulatory clarity in the region and attracted a large number of cryptocurrency players to the UAE". He said that what distinguishes the VARA framework from others around the world is the specificity of how it deals with different types of virtual asset services and activities. "There are different rules for pledges, brokers, advisory services, custodians - it makes it easier for companies to understand the specific regulatory requirements for providing certain services." VARA is committed to ensuring that the rules meet the needs of the industry, and Erzse cited as an example a recent amendment made by VARA, which now allows custodians to pledge assets under custody. "This responsiveness allows us and businesses like us to innovate quickly."

Erzse said the UAE's unique and dynamically evolving framework is particularly important at a time when regulatory momentum is building in other parts of the world. "There is ongoing regulatory competition among markets seeking to establish themselves as cryptocurrency hubs, while smaller markets are also growing rapidly." The UAE's regulatory approach allows it to attract global businesses and cryptocurrency entrepreneurs, as well as high net worth individuals looking to invest in cryptocurrencies through regulated platforms.

When asked about the future of cryptocurrencies in the UAE, Erzse expressed excitement about innovative business models such as asset tokenization. TOKO, a crypto platform focused on tokenization, recently received a license from VARA to offer such services in the UAE.

He also noted that remittances are an important use case for cryptocurrencies in the UAE and the wider region. "We are a money transfer hub and people are definitely already using cryptocurrencies to send money home, but it will be exciting to see some dedicated products emerge within the existing regulatory framework." In fact, India, the Philippines and Pakistan are all in the top 10 in our adoption index, which bodes well for the UAE as well. These countries account for a large portion of the UAE's expat population, and the soaring popularity of cryptocurrencies in these countries may also be related to the increased adoption of cryptocurrencies in the UAE.

Rising inflation in Turkey drives cryptocurrency adoption

In addition to ranking 12th in our global cryptocurrency adoption Index, Turkey also ranks fourth globally in cryptocurrency trading volume (accepting around $170 billion in transfers last year), behind the United States, India, and the United Kingdom.

Yasin Oral, CEO and founder of Turkish cryptocurrency exchange Paribu, noted that Turkey's relatively high cryptocurrency adoption rate is not surprising for several reasons, such as the country's recent macroeconomic environment and young people's interest in innovation and technology. He explained: "The world has had a difficult year due to tight monetary policy, and Turkey has also been affected. In this situation, individuals tend to look to alternatives such as cryptocurrencies to store value and diversify their portfolios. Associated with this behavior, as each market cycle attracts new investors and adopters, more individuals and entities learn about the benefits of blockchain, ultimately leading to increased levels of cryptocurrency adoption."

In fact, Turkey has been facing rising inflation, which was close to 60% in August 2023. In addition, after the Turkish central bank cut interest rates by 100 basis points, the Turkish lira plunged in 2021. The lira hasn't recovered since - in fact, it hit a record low in mid-2023. We can see evidence in the chart below that the devaluation of the Turkish currency is driving interest in cryptocurrencies. Starting around March 30, there was a big buying spike. Analysts say the value of the lira will fall sharply regardless of who wins the country's election in May, at a time when the currency is already weak. After a sustained decline, with the lira hitting a new low of $0.04 and the public waiting for the central bank's rate announcement, USDT purchases picked up again in late July. Keep in mind that we use the 30-day average of lira purchase UDST data as a display, which is a little slow to show the trend.

Overall, we also found that USDT was the most purchased crypto asset with lira on global exchanges.

However, not all cryptocurrency activity in Turkey is focused on stablecoins. A broader analysis shows that despite an overall decline in NFT activity since mid-2022, Turkey is the country with the highest network traffic for NFT platforms in the MENA region.

Artists such as Turkish-American entrepreneur Refik Anadol were among the first to use AI to create immersive artwork, and he helped pioneer the NFT craze in Turkey. During this time, local crypto platforms such as Paribu attracted and supported NFT activity. The recent market turmoil may have caused NFT's popularity to decline, but Oral believes NFT will play an important role in the future. "We believe that NFT and utility tokens will be critical in defining innovative solutions in many industries such as retail, entertainment and the arts. Turkey is indeed going to be an important hub for the next wave of blockchain solutions, and NFT technology will be a key component of that."

Saudi Arabia leads the world in year-on-year growth in cryptocurrency trading

Last year, no country's crypto economy grew more than Saudi Arabia, which saw a 12.0% year-over-year increase in transactions. In fact, Saudi Arabia was one of only six countries where transaction volumes increased year-over-year during our study period.

Abdulmajed Alhamzah, managing director of Saudi Arabian cryptocurrency exchange Rain, described why cryptocurrencies are attractive to Saudi users. "Retail investors tend to be the largest group turning to cryptocurrencies in search of portfolio diversification. Many have already invested in real estate, stocks and other assets, and they are keen to invest in cryptocurrencies. Recalling the transformative impact of the Internet, they are eager to get early exposure to cryptocurrencies and expect significant growth in the coming years." He also noted that there has been an increase in cryptocurrency adoption and institutional interest in the region, which makes up a large portion of Rain's institutional clients in the region. "Many of the businesses we work with see long-term value in cryptocurrencies, which are seen as an asset class in clients' diversified portfolios."