2023 proved to be a year of strong recovery for global crypto markets with asset prices and market sentiment rebounding positively after the turmoil of the previous year. In its analysis of on-chain activity, Chainalysis, the blockchain data company, has been able to estimate that the global crypto investor community achieved total gains of US$37.6 billion in 2023. While this total is much smaller than the US$159.7 billion in gains made during the 2021 bull market, it represents a significant recovery from 2022, which saw estimated losses of US$127.1 billion.
Investors in the UAE were no exception to the positive trend, realising capital gains totalling US$204 million from their crypto investments. With the crypto community in Saudi Arabia cashing out gains of US$351 million, the UAE placed second in the GCC in terms of absolute gains realised by crypto investors. None of the other GCC countries placed among Chainalysis’ list of top 50 countries globally.
Diving deeper with its analysis, Chainalysis was able to identify Bitcoin (BTC) as the cryptocurrency of choice for UAE investors. This asset class delivered strong results for UAE investors, accounting for 70% of the total gains they made last year. Unsurprisingly, Ethereum (ETH) proved to be the second most popular cryptocurrency for UAE investors, delivering 24% of the gains that the country’s investors realised. Interestingly, XRP, the native token of the Ripple network, which placed third accounted for only 3% of the gains on UAE investors’ deposits through 2023.
“The outsized popularity of Bitcoin and Ethereum indicates a level of maturity among UAE investors. The community is clearly backing well established digital assets with steady and proven performance, rather than backing more speculative cryptocurrencies. This isn’t surprising given that we have also observed that Institutional investments by and large account for the greatest proportion of crypto transactions in the UAE,” explained Kim Grauer, Director of Research, Chainalysis.
Interestingly, crypto investors in India, the Philippines, Pakistan, and Bangladesh collectively realised gains of US$2.07, placing 6th, 20th, 25th, and 49th respectively on the global top 50 list. “The fact that these countries — the citizens of which together account for over 60% of the UAE’s population demographic — have placed among our top 50 ranking bodes especially well for the further development of the UAE’s crypto community. The strong appetite for digital assets in these nations, which will likely be strengthened by positive market performance, means greater potential for crypto-facilitated cross-border transactions — something the UAE government has demonstrated its eagerness to pioneer,” said Grauer.
Commenting on the global crypto market outlook for 2024, Grauer said, “While past performance shouldn’t be taken as indication of potential future outcomes, the outlook is encouraging. So far, the positive trends of 2023 have carried over into 2024, with notable crypto assets like Bitcoin achieving all-time highs in the wake of Bitcoin ETF approvals and increased institutional adoption. If these trends continue, we may see gains more in line with those we saw in 2021.”
Methodology: How Chainalysis calculates cryptocurrency gains and estimate gains by country
The company uses on-chain data to estimate investors’ cryptocurrency gains based on movements of crypto assets in and out of services where they can be on or off-ramped into fiat currency. Specifically, Chainalysis starts by measuring the on-chain, macro-level flows of a select group of assets that account for approximately 80% of total market capitalization for all cryptocurrencies, and which are traded on major centralized exchanges offering crypto-to-fiat conversion. Then, the company estimates the total, collective gains made on each asset by measuring the differences between the U.S. dollar value of all withdrawals of the asset and the value of all deposits of the asset. The methodology rests on the fact that any deposit to a service offering off-ramping represents a potential conversion into cash, and therefore realization of any gains or losses on the asset. While the methodology isn’t perfect, it gives Chainalysis a strong estimate of gains across popular assets traded on centralized exchanges.
Once Chainalysis estimates gains on crypto assets for users of each service they track using this methodology, they distribute those gains to individual countries based on the share of web traffic each country represents for each service’s website. This combination of transaction data and web traffic is also the same framework Chainalysis uses to calculate their yearly Global Crypto Adoption Index.
