After the $32 billion FTX collapse, Dubai’s cryptocurrency drive has gained attention

Sam Bankman-Fried had lunch on October 26 with innovators, bankers, and financiers, including Anthony Scaramucci, and quietly tested the waters for funding. Days later, his cryptocurrency exchange FTX collapsed.
It turned out to be a final hurrah before the former billionaire’s troubles were exposed to the world. The implosion of FTX, which went from a $32bn valuation to bankruptcy in the ensuing weeks, sent crypto markets into a tailspin, driving billions of dollars in outflows from some of the biggest global exchanges.
The aftershocks have reverberated particularly hard in the United Arab Emirates – especially in Dubai, which has been working to lure the world’s largest firms with its crypto-friendly policies.
While some financial centers tightened regulations, many UAE officials promoted virtual assets as a gold mine for economic growth and pivotal in the nation’s diversification strategy beyond fossil fuels.
That helped Dubai position itself as a crypto hub, attracting industry heavyweights while also prompting bankers, lawyers and tech executives to switch jobs. Property brokers were reporting an infusion of crypto funds into luxury real estate. Yet the end of the bull market has some expressing regret at the turn of events.
Local exchanges Rain Financial Inc. and BitOasis have trimmed headcount in Dubai. Among those rethinking their foray into the sector is Hazem Shish, a former Barclays Plc banker who recently set up a crypto hedge fund in Abu Dhabi.
While it performed well in its early months, challenges in raising institutional money amid the market turmoil prompted him to step back from the main fund’s management, according to people familiar with the matter, who requested anonymity as the information is private.
Shish declined to comment. FTX was one of the first firms granted a license by Dubai’s Virtual Asset​s Regulatory Authority as part of the push to lure business, and the exchange set up its regional headquarters in the city.
At the time, Helal Al Marri, director general of the Dubai World Trade Center Authority that houses VARA, praised the move and said it followed a rigorous evaluation – months before the firm went bust.
With FTX and Bankman-Fried now facing investigations from the US to the Bahamas, officials have distanced themselves from that decision, even scrubbing its license details from the regulator’s website.
Some links were harder to erase from view. Banners touting an FTX-sponsored party during the Abu Dhabi Grand Prix lined one of Dubai’s most exclusive beachfront drives. At the race track, spectators donned Formula One hats decorated with the FTX logo.
The firm’s collapse was the second significant blow to Dubai’s efforts within a matter of months. In June, hedge fund Three Arrows Capital imploded in one of the biggest-ever crypto trading busts, weeks after obtaining a provisional license in the city.
The drama has extended to other asset managers.
Multiple crypto hedge funds that recently set up in the UAE had put all their client money on FTX, forcing a mad scramble to exit the platform before withdrawals were halted in order to avert their own collapse, according to people familiar with the matter.
Some 4% of FTX’s global customers are based in the UAE, according to court filings in the firm’s bankruptcy case, making it one of the top 10 jurisdictions impacted by the fallout.
FTX and Three Arrows Capital didn’t have full-scale licenses, limiting the local fallout to an extent. The Dubai virtual assets regulator’s structure is aimed at opening the doors for the biggest firms to operate, but initial licenses only allow a narrow range of services.
Still, the incidents have prompted a debate over whether authorities were too nimble in their push to lure crypto firms, lending legitimacy to companies that have since gone bust.
“As a regulator, there’s always the risk that if things go wrong it looks really bad,” said Dapo Ako, a former compliance specialist at UBS Group AG, whose firm J. Awan & Partners is helping crypto firms set up in the UAE.
“But it’s also a chance to rethink the framework. If Lehman didn’t fail, we wouldn’t have new banking regulations.”
An official at VARA said FTX hadn’t cleared the approval process to onboard any clients or start operations. In a July statement, they said the license would allow FTX to deploy crypto derivatives products and trading services to qualified institutional investors.
Dubai Multi Commodities Centre, which has come under particular scrutiny from the US Treasury Department for its looser regulations, is attracting the lion’s share of crypto companies – more than 500, according to a DMCC spokesman.
“I’d expect that overall regulators will be more careful and conservative as a result of the latest developments,” said Gabriele Dunker, the Vienna-based founding partner of Financial Transparency Advisors GmbH, which has previously advised the UAE government.
UAE crypto players are now on alert for updates from the regulators. Dubai’s VARA plans to announce its CEO in the coming weeks and intends to hold further consultations with key stakeholders before year-end, people familiar with the matter said.
Meantime, Abu Dhabi’s efforts to finalize federal legislation for crypto have been delayed as authorities navigate a lobbying push from industry insiders as well as scrutiny from international bodies over money laundering and consumer protection concerns.
The Binance CEO, for his part, has initiated a proof of reserves system to support “full transparency.” However, his firm has declined to disclose the full details of its corporate structure.
“We have the largest offices in Dubai and Paris so you can view those two as global hubs,” Zhao told Bloomberg.
A Binance spokesperson said the exchange is growing its UAE team and is in the midst of a corporate restructuring to give regulators further clarity about the organization.
For now the UAE, like some financial centers, is sticking to its conviction of becoming a crypto hub. Hong Kong has reiterated its desire to lure virtual-asset firms, while Japan has proposed easing token-listing rules. Singapore, on the other hand, has stated its preference for use-case based blockchain technology while warning against retail crypto trading.
Abu Dhabi funds including Mubadala Investment Co. had set up committees to study investments in the crypto ecosystem. They’ve felt vindicated for proceeding cautiously and plan to tread carefully in the coming months, people familiar with the matter said.
A Mubadala spokesperson declined to comment. But other entities controlled by UAE National Security Adviser Sheikh Tahnoon Bin Zayed have maintained a more aggressive approach, plowing ahead with investment plans in the space. Zhao and his team met with potential backers, including entities affiliated with Sheikh Tahnoon, who oversees a large financial empire in Abu Dhabi, Bloomberg reported on Tuesday.
And earlier this month, just as Bankman-Fried tried to close a rescue deal with Binance, Zhao’s colleague Dominic Longman was in Abu Dhabi, launching the Middle East, Africa & Asia Crypto & Blockchain Association alongside UAE officials, who were pushing ahead with their embrace of the industry.
Ahmed Jasim Al Zaabi, chairman of ADGM, stated that “Abu Dhabi, and the UAE, is a leader in the development of creative and compliant crypto and blockchain firms.” “We are happy to be able to sponsor MEAACBA, which will help to expand this vibrant sector,” the statement continued.