Cryptocurrency Trading Is Strictly Prohibited In Saudi Arabia, Regulators Reaffirm Stance Against Virtual Currencies

  • Saudi Arabia's regulators have reaffirmed their stance against cryptocurrencies.
  • Crypto trading is illegal in Saudi Arabia, and claims by local websites about being "authorized" to provide crypto services are incorrect.
  • Saudi regulators have warned against the potential scams associated with virtual currencies.

Saudi Arabia’s regulatory authorities recently issued a warning stating that cryptocurrency trading is considered illegal in the country.

The Saudi Arabian Standing Committee, which monitors securities activities in the kingdom’s foreign exchange market, reaffirmed that the use of Bitcoin (BTC) and other digital currencies is strictly prohibited. Members of the regulatory committee include the nation’s Monetary Agency (SAMA), its Capital Market Authority, officials from the Ministry of Interior, the Ministry of Trade and Investment, and the Ministry of Information.

“No Parties Licensed” To Offer Crypto Services

Notably, the official announcement against crypto trading has been issued after a number of local websites and social media accounts claimed to have been licensed or “authorized” to offer crypto-related services. The Saudi Arabian Standing Committee further clarified that “no parties or individuals are licensed for such practices.”

Moreover, Saudi regulators warned the country’s residents regarding the risks involved in the cryptocurrency market. Per the kingdom’s authorities, local investors should avoid dealing in digital currencies, not only because of their volatile nature, but also due to the large numbers of scams associated with them.

Additionally, Saudi regulators said that cryptocurrency transactions can be hard to trace, and crypto-related contracts offered to investors may not be legally enforceable “as they are out of government supervision.”

“Reducing Marketing For Investment” In Virtual Currencies

While Saudi authorities have been quite clear about their stance against cryptocurrencies, they have not stated what consequences there might be for individuals and organizations who may continue to trade or invest in cryptos.

However, the standing regulatory committee has been tasked with informing the Saudi government’s officials regarding any crypto-related activities in the country. It appears that the kingdom wants to “reduce marketing for investment and trading in Forex and virtual currencies”, according to its official announcement.

Earlier in February, Crypto Globe reported that Saudi regulators had been monitoring the cryptocurrency market. Mohammed ElKuwaiz, chairman of Saudi Arabia’s Capital Markets Authority, had said that the nation’s government was “evaluating what [their] proper regulatory response should be.”

Although ElKuwaiz had also stated that Saudi regulators would “come up with something very soon”, it now seems that the country may not be as receptive to cryptos, presumably due to the increasing number of fraudulent activities associated with them.

In October, 2017, Saudi Prince Al-Waleed bin Talal, a well-known business tycoon in the Middle East, had said that bitcoin will “implode.” He also noted that cryptocurrencies “don’t make sense [because they are] not regulated” by central banks.

Notably, the Saudi Prince even said that cryptos were “Enron in the making”, which was a giant American energy and commodities trading company that filed for bankruptcy in 2001, after it was charged with corruption and accounting fraud.

 

How Bakkt Can Bring the Crypto Space an Institutional Investor Influx

Cryptocurrency enthusiasts have for years been waiting for institutional investors to enter the space. While the introduction of bitcoin futures contracts on regulated exchanges in late 2017 didn’t gain a lot of traction, but Bakkt may.

Bakkt is a long-awaited bitcoin futures exchange and on-boarding platform from the Intercontinental Exchange (ICE) - the parent company of the New York Stock Exchange – and it’s set to launch this year. Bakkt itself has remained tight-lipped over the precise launch date after delaying its launch last year, with ICE CEO Jeff Sprecher in February simply saying “later this year.”

It’s possible that this quarter may see the launch or at least more news about when the exchange is finally coming. At the end of March, Bakkt CEO Kelly Loeffler explained:

While we’re not yet able to provide a launch date, we’re making solid progress in bringing the first physical delivery price discovery contracts for bitcoin to the U.S.

Bakkt’s launch could be a major milestone for the cryptoasset industry. A venture backed by Microsoft and Starbucks, its institutional pedigree alone will switch many cautious investors on. Specifically, the firm is set to help consumers pay for goods and services with cryptocurrencies, with Starbucks being the flagship retailer in its arsenal.

Bakkt’s Bitcoin futures contracts will be the first physically-settled derivatives on a regulated trading platform. This means investors will receive the contract’s underlying asset, bitcoin, when it expires.

Currently the Chicago Mercantile Exchange (CME) offers cash-settled bitcoin futures contracts, meaning investors get the equivalent of BTC’s value in fiat when the contracts expire. This is seen by some as a major development in the cryptocurrency space, as it shows traditional finance is willing to interact with the nascent cryptoasset industry.

It’s worth noting that earlier this year the ICE’s CEO called Bakkt a “bit of a moonshot bet,”  as it was organized in a way “very different than the way ICE typically does business.” The firm has its own offices and management team, and could undergo more rounds of financing in the future.

Bakkt And a Potential Bitcoin ETF

What’s significant about Bakkt’s launch beyond this, is that it may bolster the chances of a Bitcoin Exchange-Traded fund (ETF) being approved. Such a product would make it easier for institutional investors to gain exposure to cryptocurrencies.

In August, the US Securities and Exchange Commission (SEC) rejected nine other ETF applications, in particular highlighting how those applying hadn’t provided evidence that “bitcoin futures markets are of significant size’” for an ETF to be launched.

Once Bakkt is launched its trading volumes may very well help quell the SEC’s concerns over the bitcoin futures markets’ small size as institutions and other investors may feel comfortable entering it. Larger futures contracts trading volume, increased liquidity and a well-established company involved may prove enough to convince the SEC that the time is right for a Bitcoin ETF.

Bakkt therefore represents a very significant milestone for a maturing cryptoasset industry and may well herald the “institutional influx” that many have been anticipating since 2017. Despite the markets remaining relatively flat throughout 2019 these looming decisions in the U.S. have the power to move the entire industry forward, for better or worse.