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Last week Binance announced that it had received $2bn in investment from a UAE-based fund called MGX. No terms of the deal were announced, so it’s hard to know if anyone cashed out or if this was new equity issuance. Neither party said how much of the company MGX now controls, beyond saying it’s a minority position.
This was an interesting deal for other reasons. Richard Teng, Binance’s CEO, was formerly the CEO of Abu Dhabi Global Market, a local regulator. The UAE also appears to be the main ‘hub’ for Binance, as it employs around 1,000 people there, out of 5,000 globally. Teng is also based in the Gulf state.
More interesting are the investors.
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MGX was set up last year and its purported goal is to invest in AI technology.
The two backers of MGX were the Mubadala Investment Company, which is a sovereign wealth fund operated by Abu Dhabi’s government. The other backer was G42, an AI research company and holding company, which is also partly owned by Mubdala. So basically the UAE government now owns part of Binance.
MGX’s Chairman is the National Security Advisor of the UAE, Sheikh Tahnoun bin Zayed Al Nahyan. You can read his Wikipedia page to learn about some of his exploits but Sheikh Tahnoun seems like he’d have some great stories to tell and would probably be a fun guy to go for a drink with.
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The other interesting character at MGX is board member Peng Xiao. He is also the CEO of G42 and was the Chief Technology Officer at MicroStrategy – or MacroTragedy as some are calling it – for 15 years.
But before joining G42, Xiao was CEO of Pegasus, a subsidiary of a company called DarkMatter.
DarkMatter is a ‘cybersecurity’ company that makes almost all of its money via contracts from the UAE government. The company has been credibly accused of hacking politicians’ phones, among many other escapades.
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It’s impossible to say whether there was any continuity between Pegasus and G42. However, Sheikh Tahnoun did work with DarkMatter when Xiao was there. It’s also noteworthy that G42 ended up developing an app called ToTok, a messaging application, which was ultimately found to be a piece of spyware and banned from iOS and Android app stores as a result.
So what is going on? Sometimes it’s easy to look at stuff like this and draw conclusions that aren’t grounded in any kind of reality. The UAE government has massive amounts of cash and invests in loads of companies.
A lot of the time the people involved, unsurprisingly given the size of the country and the fact so much money is in sovereign wealth funds, are also influential politicians. That might be the case here – there is actually just nothing going on and this is a random investment they decided to make.
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On the other hand, UAE government investments and policy decisions generally seem intertwined. You could say that’s self-evident but for somewhere like Norway or Singapore, it just seems about raking in the cash. UAE investments often appear to have other motives.
The point being that it may be that they see something more important in Binance than pure profit.
What could that be? I think there are a few options.
They are genuine cryptards
It is not impossible that the investors and the decision behind it were purely because they are true believer cryptoids and think fartcoin, DOGE, and Bitcoin are the future.
Another possibility is that it’s something like a call option / VC investment. They don’t believe or really care about crypto but think buying Binance could give them big returns if it does, without having to pay that much for it.
Spy stuff
One of the astonishing things about the announcement from Binance and MGX was the claim that the exchange has over 260m registered users. Assuming those are all genuine, it would mean that 5% of the world’s adult population has an account with Binance. That is an insane number.
Presumably having some control of the business would allow MGX to get an overview of (roughly) who those people are, what they are doing, and so on. Huge amounts of money goes through Binance and it’s plausible the UAE authorities are interested in having some overview of that.
US dollar harakiri
The most interesting theory that I have is that in some way the UAE sees crypto as being the future of money but not for the reasons that most cryptoids think.
The main argument most cryptoids have can basically be boiled down to…
- The government can’t be trusted to not inflate currencies
- Crypto is the solution that solves this problem
I agree with the first point, not the second but the whole argument would be too long-winded to go into. The more important point for our purposes is that the rise of crypto is not connected to inflation but the role of the US dollar today.
If you are an emerging market country, one of the main problems with the dollar is your sensitivity to US interest rates. When you have dollar denominated debt but your income is in a local currency, there is a good chance that changes to US monetary policy will mean you are cooked.
This is what happened in LATAM in the 1980s and Asia in the 1990s. Any mention of currency transactions to governments in these regions is like showing a red flag to a bull as a result, which, incidentally, is why I have always thought it is unbelievably dumb to visit them and start shouting that you are a forex broker! Note that this is probably why you have Money Expos in LATAM and India, but a Forex Expo is ok in Dubai.
Whatever the case, one consequence of this sensitivity to US monetary policy has been for countries to put in place capital controls and fixed exchange rates. The obvious negative of this is if you are a regular person in countries like Argentina, China, or Nigeria, you cannot easily get dollars and/or get your money out of the country. Note that last week the former CEO of TradingView joined a company, whose entire ‘raison d’etre’ appears to be to help solve this problem.
Compounding this is the fact that the US keeps doing stuff to make accessing dollars even harder for these people than it already is.
Today the US is sanctioning a third of the countries on earth. Those sanctions go way beyond the countries that are sanctioned though, given that any dollar transaction is impacted by them. For example, the EU could have – in theory – transacted much more with Iran than it has done but did close to nothing because of the dollar. The fact that INSTEX processed (laughably) one transaction in its entire history is an example of how hard it is to unseat the dollar and how far reaching US sanctions are.
Then you have often cumbersome regulations, aimed at capturing more tax revenue and/or preventing other people from accessing US banking, that further reduce access to US dollars.
As Louis Gave has written before, US policy over the last 5 – 10 years is kind of like if Bloomberg turned around and said “sorry but we’re not going to serve asset managers any more.” And yet people see it as bullish for the dollar!
The result of this has not been that the average person does not want dollars, it has just made it way harder for them to get access to them via normal means. Crypto has provided a much simpler way of doing this.
Today, if you look at web traffic for Binance, OKX, and Bybit, it all skews towards countries that make it hard for regular people or companies to access USD. For example, SimilarWeb currently lists these as the top 5 countries for Binance:
All of these countries have capital controls and make it difficult to access dollars. Note that data like this also won’t pick up Chinese users, who will access sites via a VPS to avoid the country’s firewall.
All of this ties in to the UAE investment in Binance because we seem to be entering a world that is more closed off. However, the UAE basically has a pro-business, no taking sides ethos. It is not surprising, for example, that India has been buying its massively discounted oil supplies from Russia, in part by paying in dirhams.
The result is that the UAE is already something like a neutral hub for business. If an American, Russian, and Chinese group of companies wanted to do business together, there is a strong likelihood they’d meet in Dubai.
Crypto is very similar. It is a way for people to access dollars (or fartcoin) and make transactions, outside of a banking system that is becoming more closed off and a world that is splitting into different political blocs.
I would also argue, and I know I’ll annoy some readers by saying this, that it’s not implausible the dollar will play a smaller role in the decades ahead.
Partly that’s because the US don’t seem to want it to, partly it’s because US debt levels are not sustainable (how can you grow GDP at current levels and still run the deficits they are?), and partly it’s because things like asset freezes / confiscations will push people away from the dollar. You can already see that with China. Note that some people will say deficits are fine. In which case why does DOGE exist and why are the people running it saying they aren’t fine?
I don’t know what will come next. My view is people use the dollar now because it’s the best of a bad bunch or because there is no alternative, compared to the past when they wanted to because they trusted the government and legal system there.
What comes next as a trusted global currency is arguably irrelevant. What crypto can do is create an easily convertible derivative (token, coin) that can be traded based on that underlying. Now it’s happening with USD but maybe in the future it will change.
Perhaps this is what the UAE sees in crypto and likes about it. It’s a system that fits with their ethos of not taking sides and being pro business in an increasingly divided world. Crypto is already a means by which people can transact when they are blocked by existing banking infrastructure. Maybe the UAE bought Binance because it wants to be the key figure in that system in the future?