The Future of Cryptocurrency in the Gulf Cooperation Council Countries

Introduction

Cryptocurrencies are no longer a fringe innovation; they have emerged as powerful indicators of a gradual yet profound shift in banking from conventional financial systems to decentralized digital models. No longer confined to speculative trading, cryptocurrencies are becoming policy instruments in international trade, a means by which countries can evade sanctions, and potentially a way for them to recalibrate geopolitical alliances. This shift is especially pronounced within the Gulf Cooperation Council (GCC), where digital finance is now central to national economic diversification as well as member states’ efforts to reduce their reliance on Western financial systems.

Mounting geopolitical pressures, such as strained U.S.-Saudi relations under president Joe Biden’s administration, the weaponization of the U.S. dollar through sanctions on Washington’s adversaries, and the economic fallout of the Ukraine war, have all catalyzed deeper partnerships between the GCC, China, and Russia. This strategic reorientation was accompanied by the entry of the United Arab Emirates (UAE) and Saudi Arabia into the BRICS+ bloc, as well as China’s increased efforts to internationalize the yuan and develop blockchain-based cross-border payment systems. These developments have reinforced the rise of digital currencies, offering the Gulf region a means by which to gradually reduce its reliance on the U.S. dollar. 

Under President Donald Trump’s administration, the United States has embraced market-led crypto-deregulation, as evidenced by the creation of a Strategic Bitcoin Reserve (SBR) and the rejection of a state-backed central bank digital currency (CBDC). In parallel, the administration has signaled increasing openness toward privately issued U.S.-backed stablecoins. The GCC, on the other hand—with the UAE, Saudi Arabia, and Bahrain at the forefront—is moving toward piloting CBDCs and exploring alternative digital currency payment platforms with China and BRICS+, as well as through intra-GCC initiatives, alongside adopting stablecoins.

The Gulf states are not just modernizing their financial infrastructure but deliberately repositioning themselves amid a global contest for influence. By strengthening ties with China and Russia, they seek to diversify their alliances, hedge against Western dominance, and assert greater autonomy in shaping the future global order. At the heart of this transformation lies a pressing question: Can digital currencies serve as the foundation for a country’s geopolitical influence and economic independence? It remains unclear whether betting on such an outcome, as Gulf countries are increasingly doing, will yield lasting leverage, but the region is clearly positioning itself to find out.

The Emergence of Cryptocurrency in the GCC   

The rise of cryptocurrency and fintech, or financial technology, in the GCC reflects economic reform and the pursuit of financial sovereignty and resilience in the face of geopolitical shifts and oil-driven vulnerabilities. Fueled by strong governmental support and post-pandemic digitalization, the fintech sector in GCC countries has transformed rapidly, setting the stage for broader blockchain adoption. Supported by targeted policy initiatives, blockchain adoption reached a compound annual growth rate (CAGR) of 70 percent, reflecting regional interest in its secure, transparent, and efficient solutions. On the other hand, cryptocurrencies, one of blockchain’s prominent applications, remain contentious. Due to its speculative nature and lack of intrinsic value, some argue that cryptocurrency resembles a tradable commodity more than a conventional currency and, as such, would pose regulatory challenges if it were to achieve mainstream use in everyday financial transactions or national economies. Conversely, its scarcity, store-of-value properties, investment appeal, limited supply, and possible role in hedging inflation have led many to dub cryptocurrency “digital gold.” 

Across Muslim-majority countries, cryptocurrencies’ attributes have raised concerns over Sharia compliance, resulting in divergent regulatory approaches among GCC states and, consequently, mixed adoption ratios. In contrast to North America and Western Europe, GCC market capitalization is comparatively nascent, yet it is promising, with a total market size of $744.3 million in 2024 and an estimated CAGR of 16.75 percent from 2025–2033. By the end of 2025 alone, it is projected to have grown to $791.8 million, having a 19.32 percent user penetration rate while the United States is projected to continue leading in revenues reaching an expected $9.4 billion. 

A closer look at individual countries reveals how each navigates the intersection of innovation, compliance, and control, with approaches ranging from bold leadership to cautious experimentation and outright restriction. The UAE is the region’s crypto trailblazer, combining ambitious adoption targets with clear regulatory frameworks through entities such as the Virtual Asset Regulatory Authority as well as the establishment of two financial free zones. In contrast, Saudi Arabia has taken a more cautious approach due to Sharia-related restrictions, banning crypto trading by financial institutions. Yet Saudi Arabia remains the region’s second-largest and fastest-growing market, propelled by strong grassroots adoption of crypto trading among its youth, who comprise 63 percent of the total population. This market vibrancy is further stimulated by the active role of the Saudi Arabian Monetary Authority (SAMA) in promoting the adoption of blockchain and attracting major international financial institutions such as Rothschild and Goldman Sachs, both of which are planning to launch tokenization projects as part of their digital asset platforms. The latter are initiatives that convert traditional financial assets such as bonds or trade finance instruments into digital tokens on a blockchain—making them more accessible, traceable, and easier to trade globally. 

Bahrain and Oman have adopted a regulation-first posture, prioritizing compliance, infrastructure, and licensing over rapid adoption. Recently, the Central Bank of Bahrain updated its regulatory framework, classifying crypto assets as securities, and reinforced Anti-Money Laundering (AML) regulations in line with international standards. Despite these efforts, Bahrain’s crypto market remains the smallest in the region (see table below). Similarly, Oman’s Financial Services Authority established a provisional regulatory framework for Virtual Asset Service Providers and AML compliance requirements.  Though the regulations are still provisional, the government has licensed two entities to operate crypto-mining and data centers.  

At the most conservative end of the spectrum, Kuwait and Qatar have adopted the most restrictive approaches, deliberately excluding themselves from crypto markets, in line with their stance that digital assets are not legal tender. However, Qatar has recently begun softening its stance, allowing the Qatar Financial Centre, a regulatory authority, to introduce a legal framework for digital assets. Covering tokenization and legal recognition of smart contracts, the framework is expected to be finalized in the second quarter of 2025. Doha has also established a distinct regulatory zone for digital assets to promote fintech innovation.  

GCC countries have also demonstrated openness, albeit with caution, toward CBDCs, particularly for their strategic potential to reduce U.S. dollar dependency and enhance cross-border payment efficiency. Beyond their technical utility, CBDCs are strategic assets in Gulf countries’ broader effort to recalibrate their financial sovereignty. Leading the way in “wholesale CBDC”—designed for financial institutions, facilitating both domestic settlements and cross-border financial transactions—are pilot programs in the UAE, Bahrain, Oman, and Saudi Arabia. For instance, in 2019, Saudi Arabia’s SAMA and the Central Bank of the UAE conducted an interoperability test for cross-border CBDC transactions as part of Project Aber. Bahrain has also undertaken several interoperability tests with JP Morgan, and is currently in the piloting stage.  

Meanwhile, Qatar has completed the necessary infrastructure and will pilot CBDC wholesale, with potential expansion to retail. Retail CBDCs—designed for domestic use and, in some cases, cross-border transactions—offer several benefits, including eliminating bank intermediaries. This can reduce transaction costs and promote greater competition between commercial banks, leading to improved deposit rates, enhanced bank lending, and, through decentralized adoption, greater financial accessibility.   

CBDCs present a sovereign alternative to traditional, dollar-dominated systems, offering greater resilience and transparency in a world of realigning financial power centers. However, their widespread adoption by these centers would pose considerable challenges, as CBDCs compete with traditional bank deposits, which currently account for 83 percent of banks’ funding. This could undermine the conventional banking system’s ability to create credit, which would erode banks’ profitability and weaken the effectiveness of conventional monetary policy instruments, such as interest rate adjustments.

In this context, stablecoins are emerging as more palatable alternatives to volatile cryptocurrencies. These digital assets are typically pegged to sovereign currencies such as the U.S. dollar or the euro, offering price stability and greater regulatory clarity. While they fall under broader crypto regulations, stablecoins’ fiat backing often means that they are subjected to less scrutiny, which facilitates their wider adoption. Notably, the UAE Central Bank recently approved its first regulated stablecoin, AE Coin, as part of its efforts to integrate digital assets into the formal financial system—underscoring the country’s ambition to become a regional hub for digital finance.

The Role of Digital Assets in Statecraft: Geopolitical Ramifications

Over the past two decades, the Gulf’s geopolitical landscape has undergone a significant transformation, one marked by deepening engagement with China and Russia. This evolution is not merely a function of shifting global power dynamics but a calculated effort by GCC countries to diversify their alliances, assert greater autonomy in foreign policy, and navigate a more multipolar world. The eastward orientation has been accelerated by multiple catalysts, including strained U.S.-Saudi relations under the Biden administration, regional economic diversification goals, the Ukraine war, Western sanctions on Russia, and the GCC’s pivot from Western trade networks.

A striking manifestation of the shift is Dubai’s emergence as a leading global trading hub, which was driven in part by Russian firms relocating from Geneva, Switzerland to the UAE to circumvent international sanctions. Equally notable is Saudi Arabia’s signaling of its openness to settling oil sales in yuan despite its longstanding petrodollar system, which suggests the possibility of a broader reconfiguration of global energy and financial alliances. In parallel, China’s efforts to internationalize the yuan through currency swaps, cross-border transactions, and digital currency initiatives offer the Gulf region an alternative to its reliance on the U.S. dollar.  

Further reinforcing the Gulf’s eastward shift is the fact that the UAE and Saudi Arabia, animated by distinct yet complementary motives, joined the BRICS+ initiative. The UAE seeks to solidify its position as a global financial hub, whereas Saudi Arabia aims to pivot away from its reliance on U.S. influence. BRICS, in turn, has proposed alternative financial mechanisms to those of the United States, with Russian President Vladimir Putin advocating a blockchain “BRICs platform” to facilitate cross-border transactions using digital currencies. This aligns with the mBridge CBDC pilot in 2021, a multi-central bank initiative that includes China, Thailand, and the UAE, and is in partnership with the Bank for International Settlements (BIS). Saudi Arabia joined the project in 2024.   

Whereas BIS officially stated that its role in the pilot phase reached completion after the successful development of the mBridge minimum viable product, some observers argue that the exit was influenced by U.S. pressure—an assertion BIS publicly denied. Regardless of the cause, BIS’s withdrawal from the initiative left the project under the control of the participating central banks, signaling the need for a bolder attempt to carve out a parallel monetary architecture. Though there are indications that China would be willing to undertake this step, the geopolitical implications of pursuing currency autonomy for GCC countries are risky; such a move could strain relations with Washington or even provoke financial retaliation. The prospect of retaliatory tariffs, especially under the current Trump administration that views financial decoupling from China as a strategic imperative, underscores how high the stakes can be for GCC countries.

The United States today is charting a different course in digital asset policy, with cryptocurrency and digital assets positioned at the forefront of its economic agenda. Two executive orders have marked this pivot. The first aims to deregulate the industry and facilitate U.S. leadership in the crypto space while banning the issuance of a U.S. CBDC. The second establishes a Strategic Bitcoin Reserve to stockpile Bitcoin and other cryptocurrencies, positioning them as a new class of sovereign national asset. These developments have elevated debates around Bitcoin and cryptocurrency’s role in statecraft to the forefront of global policy discourse. No longer merely a vehicle for sanctions evasion or speculative trading, Bitcoin and other digital assets are now fueling speculation about potential stockpiling, one involving China, Russia, and possibly the GCC. Still, Bitcoin’s extreme volatility and speculative nature undermine its viability as a reliable reserve asset, and any potential strategic utility would be minimal and primarily dictated by market fluctuations, rather than government policies.

While GCC governments may experiment with crypto and bitcoin holdings to diversify reserves, efforts to embed them within monetary policy frameworks face inherent challenges. Meanwhile, the GCC’s adoption of CBDCs, particularly through eastward-looking partnerships or intra-regional initiatives such as mBridge and Project Aber, reflects a long-term strategic direction that prioritizes interoperability and autonomy, and a means to shape or even influence trade rules. Nevertheless, this brings significant challenges, namely technical interoperability issues, currency substitution risks, increased capital flow volatility, and the potential for faster transmission of external shocks.

Stablecoins offer a counterbalance to these challenges. Rather than introducing an entirely new monetary framework, they reinforce the role of the U.S. dollar in the digital economy by enabling dollar-based transactions over decentralized blockchain networks without needing a direct relationship with the U.S. banking system. This makes the dollar more portable and accessible. However, it also reduces U.S. oversight and control over how and where the dollar is used.

Conclusion

The GCC’s approach to cryptocurrency is shaped by its pursuit of economic diversification, its shifting geopolitical alignments, and its evolving regulatory frameworks. Even in those GCC states taking a more cautious stance, digital assets are expected to gain traction and emerge as a central pillar of the region’s broader economic and geopolitical strategy. Looking ahead, the volume of trade settlements using cryptocurrencies and further digital asset initiatives with China, BRICS nations, or Russia, are expected to grow. However, a full-scale transition remains unlikely in the near term, due to potential U.S. political and economic retaliation.

The GCC’s favorable regulatory environment positions it to play a central role in innovation and the development of alternative trade settlement mechanisms, arenas that may offer more substantial and stable economic advantages. Additionally, state-backed CBDCs are expected to gain momentum. The absence of a U.S. CBDC leaves room for the GCC to assume a leadership role in the adoption of CBDC in financial systems. However, the lack of instances of countries having formally incorporated CBDCs into their financial systems and subsequently managed their impact on interest rates, lending mechanisms, and banking profitability will slow their adoption. Meanwhile, increased adoption of stablecoins by the GCC is highly anticipated, as their model bypasses the control of foreign or state-issued currencies, offering greater accessibility and flexibility. Stablecoins could erode American control, paving the way for a system in which dollar-denominated value circulates independently of U.S. influence.

Finally, as digital currencies evolve from mere technical innovation to geopolitical instruments, the question is not whether the Gulf participates in this transformation. Rather, it is how boldly the Gulf engages with the change. Ultimately, the trajectory of the GCC will hinge not only on aligning with global powers but also on how strategically it uses its regulatory advantages to craft a digital financial ecosystem that reflects its own priorities.

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