WEBVTT - The UAE’s Crypto Ambitions Post-FTX

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<v Speaker 1>This is Bloomberg Crypto, a daily Bloomberg I Heard podcast,

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<v Speaker 1>and I'm Stacy Marie Ishmael, Managing editor of Crypto for

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<v Speaker 1>Bloomberg News. It's Wednesday, January eleven. The United Arab Emirates

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<v Speaker 1>or the UAE has spent quite a lot of time

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<v Speaker 1>and considerable resources positioning itself as a crypto friendly hub.

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<v Speaker 1>It's efforts have attracted some of the top names in

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<v Speaker 1>crypto to the region. The CEO of the world's largest

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<v Speaker 1>crypto exchange Finances, Chang Pang Zao or c Z, has

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<v Speaker 1>a residence in Dubai. It's also where Suzu and Kyle Davis,

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<v Speaker 1>the co founders of the crypto hedge fund Three Arrows Capital,

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<v Speaker 1>have most recently set up shop, and Sam Bankman freed,

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<v Speaker 1>of course, travel to Dubai from meetings with investors just

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<v Speaker 1>weeks before the collapse of FTX. Fd X, incidentally was

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<v Speaker 1>one of the very first firms to be granted a

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<v Speaker 1>license to operate in the region by Zubai's regulators for

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<v Speaker 1>virtual assets, and around four per cent of FDx is

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<v Speaker 1>global customers were based in the u A, according to

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<v Speaker 1>court filings in that bankruptcy case that makes the UA

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<v Speaker 1>one of the top ten jurisdictions affected by the FTX fallout. Overall,

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<v Speaker 1>a pretty mixed picture. For more on the crypto ambitions

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<v Speaker 1>of the u a E, I'm joined today by Bloomberg

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<v Speaker 1>proposes suba stry Bush the way is coming to this

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<v Speaker 1>party and really warming up to to these investors and

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<v Speaker 1>Ben Bartonstein. When you talk to authorities here, they describe

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<v Speaker 1>how they want to be at the cutting edge. They

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<v Speaker 1>want to capitalize on the fact that a lot of

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<v Speaker 1>companies are you know, find the u a AT an

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<v Speaker 1>attractive home to to set up and they want to

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<v Speaker 1>keep those those companies here. Suva, Ben, Welcome to the podcast. Ben.

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<v Speaker 1>Why don't we start with you. You're one of our

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<v Speaker 1>Dubai based report is. What's it been like getting kind

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<v Speaker 1>of pulled into the crypto story for the past couple

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<v Speaker 1>of years. Yeah, it's been a real education for me.

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<v Speaker 1>It's not something I knew too much about a little

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<v Speaker 1>over a year ago, but as a lot of the

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<v Speaker 1>key players in the industry have either moved here or

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<v Speaker 1>spent part part of their time here, it's been a

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<v Speaker 1>real education getting to know a new industry and see

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<v Speaker 1>how it's evolved. Quite significantly in a short time horizon.

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<v Speaker 1>The crypto story really picked up in that's when Abudabi

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<v Speaker 1>Global Market, which is a hub for a lot of

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<v Speaker 1>the multinationals in the capital city Abu Dhabi, a d

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<v Speaker 1>g M as it's called, established its own Virtual Assets

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<v Speaker 1>Regulatory Authority framework, considering itself one of the sort of

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<v Speaker 1>one of the early adopters in that space, and it

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<v Speaker 1>really sort of accelerated in of course, COVID hit the world.

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<v Speaker 1>There was the lockdown, but the UAE really emerged from

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<v Speaker 1>lockdown a lot more quickly than than the average country

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<v Speaker 1>with a very quick vaccination rollout, and really as other

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<v Speaker 1>sort of multinational hubs such as Hong Kong and Singapore

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<v Speaker 1>we're still in lockdown, a lot of sort of fintech

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<v Speaker 1>entrepreneurs started moving to this city. So this kind of

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<v Speaker 1>accelerated efforts by authorities to try to recruit a lot

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<v Speaker 1>of talent, especially in the fintech crypto space. Right one

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<v Speaker 1>of the biggest names that you know, the UAE and

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<v Speaker 1>DUBAIS specifically has been able to attract at least as

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<v Speaker 1>a resident, if not necessarily somebody who has a business headquarters.

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<v Speaker 1>There is of course c Z the CEO of Finance,

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<v Speaker 1>which is the world's largest exchange. Can you talk more

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<v Speaker 1>about the perception of finance in the region. Why CZ

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<v Speaker 1>is there, what rule are Dubai and the UE hoping

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<v Speaker 1>that someone with such a high profile can play. CZ

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<v Speaker 1>actually relocated to Dubai late two thousand twenty one, you know,

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<v Speaker 1>and that was because he failed to get a license

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<v Speaker 1>from the Singapore authorities. And before that he was in

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<v Speaker 1>Hong Kong. So he has been shifting his space quite

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<v Speaker 1>a bit after you know, China crackdown and banned all

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<v Speaker 1>of crypto and then, as he said, he relocated to

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<v Speaker 1>Dubai and he's got a home there and he is

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<v Speaker 1>the front runner for all of crypto world really, right,

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<v Speaker 1>and when the so called king you know, lands in

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<v Speaker 1>a region which is relatively more friendlier than other regions,

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<v Speaker 1>other countries, then he could say that the entire ecosystem

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<v Speaker 1>also really warms up. And that is what we saw

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<v Speaker 1>after c Z moved to Dubai and shifted his base,

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<v Speaker 1>and he's hired hundreds of people in his so called

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<v Speaker 1>headquarters in Dubai where is set up his office. So yes,

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<v Speaker 1>the CZ moving has actually encouraged a lot of development

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<v Speaker 1>in Dubai as well as in the in the U

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<v Speaker 1>region per se on the crypto industry. So that's very

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<v Speaker 1>interesting contracts, right because Ben, as you know, one of

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<v Speaker 1>the pieces of reporting that you, of course have been

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<v Speaker 1>doing very consistently for several months is this shall we say,

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<v Speaker 1>symbiotic relationship between the regulators and the regulatory framework in

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<v Speaker 1>the u E and those efforts to attract not just

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<v Speaker 1>crypto but also fintech entrepreneurs, companies and businesses more broadly. So,

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<v Speaker 1>what are some of the big regulatory priorities for the

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<v Speaker 1>UE given that they've had success with finance so far,

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<v Speaker 1>but they also gave a license to fd X, which

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<v Speaker 1>you know, collapse to not super long after that happened. Certainly,

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<v Speaker 1>when it comes to the broader economic strategy within the

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<v Speaker 1>U a E, the U as home to six percent

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<v Speaker 1>of the world, has proven oil reserves, but they're thinking ahead,

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<v Speaker 1>you know, decades into the future, how can we diverse

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<v Speaker 1>fire economy And they're talking a lot about the digital

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<v Speaker 1>economy and how crypto is a key pillar in that strategy.

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<v Speaker 1>So I think when you talk to authorities here, they

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<v Speaker 1>describe how they want to be at the cutting edge.

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<v Speaker 1>They want to capitalize on the fact that a lot

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<v Speaker 1>of companies are you know, find a U at an

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<v Speaker 1>attractive home to to set up, and they want to

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<v Speaker 1>keep those those companies here. Of course, in the past

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<v Speaker 1>six months, some of the authorities have been quite unsettled

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<v Speaker 1>with what's transpired in the industry. A lot of development

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<v Speaker 1>since the stunning collapse of former billionaire Sam Bankman freed

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<v Speaker 1>ft X Empire last week one of the two. But

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<v Speaker 1>certainly when you talk to certain UI officials, they recognized

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<v Speaker 1>there will be some failures, but they'd rather you know,

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<v Speaker 1>strike out a few times but still be right in

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<v Speaker 1>the thicker things than let this opportunity pass them by

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<v Speaker 1>and and let some other place sort of capture more

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<v Speaker 1>of the market share in this industry. It's interesting to

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<v Speaker 1>hear you describe it like that, because that sounds kind

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<v Speaker 1>of more like how venture capitalists think and not so

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<v Speaker 1>much regulators in a lot of ways. But Suva, I

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<v Speaker 1>want to come back to you in this point because

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<v Speaker 1>it seems like what's developing here is regulatory arbitrage, which

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<v Speaker 1>you alluded to a bit in talking about the challenges

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<v Speaker 1>that CZ has faced in trying to secure those operational

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<v Speaker 1>licenses for finance, So where are those folks who And

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<v Speaker 1>to be clear, this is not a crypto didn't invent

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<v Speaker 1>regular story, I b rage. Financial services companies and people

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<v Speaker 1>who work in financial services are very good and identifying

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<v Speaker 1>jurisdictions that let them do what they want to do

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<v Speaker 1>or give them amenable terms to do so. But what

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<v Speaker 1>has been the response of other countries, other cities, other

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<v Speaker 1>states who might be looking at the relative success that

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<v Speaker 1>Dubai in the UA, you're having an attracting business flows, attention, marketing, hype.

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<v Speaker 1>These other places are looking inward and are they saying, well,

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<v Speaker 1>do we need to change our own approach as a

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<v Speaker 1>regulator in order to compete? There has been a lot

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<v Speaker 1>of regulatory arbitrage and like like we've seen that how

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<v Speaker 1>Singpore has tightened their rules. Yes, we still want to

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<v Speaker 1>be a crypto hub, but if you mean whether we

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<v Speaker 1>want to be a hub for the trading of cryptocurrencies, no,

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<v Speaker 1>that's not part of the vision. We did not state

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<v Speaker 1>it so emphatically before, but now we are stating it

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<v Speaker 1>much more rophatically than almost proposed to make it impossible

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<v Speaker 1>for retail investors to trade in crypto in the same way,

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<v Speaker 1>you know, you've seen some other countries as like Thailand

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<v Speaker 1>doing the same thing. However, Hong Kong is again, you know,

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<v Speaker 1>trying to establish themselves as a crypto hub in Asia.

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<v Speaker 1>It shows that there is a lot of differences in

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<v Speaker 1>the approach that regulator stay. That is also helping to

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<v Speaker 1>some extent for some crypto natives and crypto investors to

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<v Speaker 1>understand where to go and when not to go. And yes, Dubai,

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<v Speaker 1>as you were saying in the beginning and was Ben

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<v Speaker 1>Ben was also saying that you know that they are

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<v Speaker 1>trying to kind of warm up to this new wave

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<v Speaker 1>of so called capitalism if I can say, or or

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<v Speaker 1>the wealth creation or whatever. Like, you know, Dubai is

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<v Speaker 1>coming to this party and really warming up to to

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<v Speaker 1>these investors because these are deep pocketed investors. You can

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<v Speaker 1>get rich fast. It's a way of making money and

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<v Speaker 1>without much regulations. We'll be right back after the break

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<v Speaker 1>with more from Suber and Ben on the UEA S

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<v Speaker 1>future in crypto. We still have to address one of

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<v Speaker 1>the biggest criticisms here, is this really the best moment

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<v Speaker 1>to be chill about crypto regulations? As you know, it

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<v Speaker 1>felt like on a weekly and in some cases hourly

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<v Speaker 1>basis from the second half of two that we were

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<v Speaker 1>reporting on folks filing for bankruptcy or just generally collapsing

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<v Speaker 1>or halting withdrawals or being incredibly accused of various types

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<v Speaker 1>of you know, bad things. And at the center of

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<v Speaker 1>all this has been a real concern that retail investors

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<v Speaker 1>have not really had a lot of recourse. Ben one

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<v Speaker 1>of the stories that he reported on was on that

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<v Speaker 1>kind of tension, like how to balance the need to

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<v Speaker 1>not stymy innovation, to continue to encourage people who want

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<v Speaker 1>to come and take risks and try new things, but

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<v Speaker 1>also to protect the investors in those companies as well

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<v Speaker 1>as the retail investors who put their money and their

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<v Speaker 1>trust in those companies. And one of the things that

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<v Speaker 1>been you identified in your reporting, and this comes from

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<v Speaker 1>bankruptcy documents, is that the UAE had a not small

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<v Speaker 1>number of investors with money locked up in f t X.

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<v Speaker 1>They were at least one of the top ten or

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<v Speaker 1>twenty jurisdictions in terms of creditors to f t X.

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<v Speaker 1>So from their own perspective, it seems like they have

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<v Speaker 1>a real interest in getting this right at least the

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<v Speaker 1>next time. I guess i'd be curious, um what the

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<v Speaker 1>sort of nationality breakdown is there, because I guess the

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<v Speaker 1>interesting and somewhat unique thing about the use the fact

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<v Speaker 1>that about of the population is non Emirati. So when

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<v Speaker 1>I talked to officials here about consumer protection in the

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<v Speaker 1>context of crypto, it's not something that they dismissed, but

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<v Speaker 1>it's not at the top of the priority list, And

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<v Speaker 1>I guess it makes you wonder how the demographics within

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<v Speaker 1>the country perhaps factor into that a bit, because the

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<v Speaker 1>general line that I hear when talking to Emirati officials

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<v Speaker 1>about this is they don't want to have too much

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<v Speaker 1>government intervention and preventing retail investors from an insting in something.

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<v Speaker 1>Perhaps it's quite risky, but they say that's you know,

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<v Speaker 1>buyer beware. We don't want to be stepping in the

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<v Speaker 1>middle of things. Of course, if if Amarati locals are

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<v Speaker 1>burned by particular investment, that's when the government takes a

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<v Speaker 1>much greater interest in trying to crack down and understand

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<v Speaker 1>what exactly went wrong. There's the fact that this is

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<v Speaker 1>a hub for lots of people, for lots of different places.

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<v Speaker 1>In addition to that, you have local family offices for example,

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<v Speaker 1>or other types of entities that might have different types

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<v Speaker 1>of risk considerations like fintech or energy or real estate.

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<v Speaker 1>But have you found that crypto is making real in

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<v Speaker 1>roads into that local Emirati population as well as that

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<v Speaker 1>broader base of folks from multinationals who are attracted to

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<v Speaker 1>the u E. Absolutely, Although the Amiati nationals make up

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<v Speaker 1>the minority of the population, it is a quite youthful population,

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<v Speaker 1>a lot of folks who are early adopters in the

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<v Speaker 1>crypto space. What you'll see is some of the more

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<v Speaker 1>senior decision makers within the u a E. Their children,

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<v Speaker 1>their nieces, their nephews, got into crypto at a quite

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<v Speaker 1>an early stage and have since convinced, you know, their

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<v Speaker 1>parents or uncles or aunts, Hey, this is where we

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<v Speaker 1>need to put the family money. So yeah, again, even

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<v Speaker 1>if you know ten percent the population here is Amati,

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<v Speaker 1>you know there is probably a greater share of their

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<v Speaker 1>net worth that's in crypto on a percentage basis than

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<v Speaker 1>probably the majority of countries in the world. And then

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<v Speaker 1>going back to boom and bus cycles, the UA has

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<v Speaker 1>seen some pretty intense examples of this. The vibe in

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<v Speaker 1>was not fun. There was a lot of distress, There

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<v Speaker 1>was a lot of concern that things had gotten too frothy,

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<v Speaker 1>too fast, and that the shakeout was going to be

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<v Speaker 1>really intense, and frankly it was for a while now.

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<v Speaker 1>For someone who has not necessarily been paying attention to

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<v Speaker 1>all financial markets for the past, you know, fifteen or

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<v Speaker 1>twenty years, things now might seem completely chill and totally fine.

0:12:56.080 --> 0:13:00.080
<v Speaker 1>So have folks learned any lessons from previous market cycles?

0:13:00.080 --> 0:13:02.600
<v Speaker 1>Certainly that there have been some changes in the real

0:13:02.720 --> 0:13:05.480
<v Speaker 1>estate sector for one. But I guess the other thing

0:13:05.520 --> 0:13:08.160
<v Speaker 1>that's really changed since the O eight crisis when it

0:13:08.160 --> 0:13:10.800
<v Speaker 1>comes to the U a E is just the the

0:13:10.960 --> 0:13:14.480
<v Speaker 1>size and heft of the wealth funds. In Abu Dhabi

0:13:14.520 --> 0:13:17.360
<v Speaker 1>in particular, you sort of have these two counterweights as

0:13:17.400 --> 0:13:19.320
<v Speaker 1>far as attracting people to the U a E. You

0:13:19.400 --> 0:13:22.800
<v Speaker 1>have Dubai's the hub for multinationals and the glitz and

0:13:22.800 --> 0:13:25.720
<v Speaker 1>glamour appealing to a lot of the sort of crypto set.

0:13:26.160 --> 0:13:28.959
<v Speaker 1>But then Abu Dhabi has really, I think one of

0:13:29.000 --> 0:13:32.280
<v Speaker 1>the bigger global stories right now is become sort of

0:13:32.320 --> 0:13:34.599
<v Speaker 1>a funder of last resort for a lot of companies.

0:13:35.000 --> 0:13:37.440
<v Speaker 1>Those two kind of go hand in hand, and at

0:13:37.520 --> 0:13:40.400
<v Speaker 1>least for right now, keeping a lot of attention on

0:13:40.440 --> 0:13:42.600
<v Speaker 1>the u a E and a lot of traffic into

0:13:42.600 --> 0:13:46.120
<v Speaker 1>the country. But certainly, as you alluded to, the booms

0:13:46.120 --> 0:13:48.280
<v Speaker 1>and the bus have both probably been felt a bit

0:13:48.320 --> 0:13:51.280
<v Speaker 1>harder in the UAE than than elsewhere. It's it's a

0:13:51.320 --> 0:13:54.120
<v Speaker 1>real roller coaster, so there is concern when you talk

0:13:54.200 --> 0:13:56.440
<v Speaker 1>to bankers, when you talk to the lawyers and others

0:13:56.440 --> 0:13:59.120
<v Speaker 1>in the financial industry about when the hard times may

0:13:59.160 --> 0:14:02.640
<v Speaker 1>come back. And on that cherry note, thank you both

0:14:02.679 --> 0:14:05.160
<v Speaker 1>for joining the podcast. I appreciate you taking the time.

0:14:05.640 --> 0:14:07.680
<v Speaker 1>You can find more of their reporting on the Bloomberg

0:14:07.760 --> 0:14:10.800
<v Speaker 1>terminal and on Bloomberg dot com, and of course check

0:14:10.840 --> 0:14:13.679
<v Speaker 1>out our twice weekly newsletter, which is called you Guessed

0:14:13.720 --> 0:14:22.720
<v Speaker 1>It Bloomberg Crypto. This is Bloomberg Crypto at daily podcast

0:14:22.760 --> 0:14:25.880
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0:14:33.040 --> 0:14:36.080
<v Speaker 1>questions or suggestions for the show to Crypto at Bloomberg

0:14:36.120 --> 0:14:42.920
<v Speaker 1>dot net. The supervising producer of Bloomberg Crypto is Vicky Vergelina.

0:14:43.320 --> 0:14:47.000
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0:14:47.000 --> 0:14:50.640
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0:14:50.720 --> 0:14:54.280
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0:14:54.640 --> 0:14:59.680
<v Speaker 1>Original music by Leo Sidron. I'm Stacy Marie Schmal We'll

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<v Speaker 1>be back tomorrow. M