Starting a new business is hard in itself, but what if the industry an entrepreneur wants to operate within does not exist? This was the challenge faced by Rain, the Middle East’s first licensed cryptocurrency exchange, writes Keith J Fernandez.
Winning new clients is one of the hardest things about starting a company. Before Egyptian national Yehia Badawy and his three business partners could even think about this, they had to clear a bigger hurdle: convincing financial regulators to endorse a new type of business in a non-existent industry.
Their idea was Rain, the first licensed cryptocurrency exchange in the Middle East. Bootstrapped in 2017, the venture fills a gap in the region’s digital assets market by facilitating the trade and exchange of digital currencies for conventional money.
Cryptocurrencies are a late-stage digital tender. Neither backed by physical assets nor guaranteed by central banks, they are nearly impossible to counterfeit. More than 2,000 decentralised virtual currencies exist today, largely outside the sphere of influence of traditional financial organisations.
“Many people believe the internet should have its own currency. Why should the euro or the US dollar or any other fiat currency be the default way to buy and sell goods and services online? That said, these transactions need to be safe, secure and properly regulated,” Badawy, 33, says.
The most famous cryptocurrency is Bitcoin. Created in 2008, it caught the public’s attention in late 2017, when investors drove the value of one unit to nearly $20,000 before sending it back down to around $3,000. Subsequently, Bitcoin stabilised at around $10,000.
Other cryptocurrencies have had similar trajectories. The fluctuations raised awareness of this fledgeling business sector while underscoring the importance of adequate safeguards.
“The industry has [now] reached the next level of maturity. There’s definitely a change in tone following a better understanding of cryptocurrency trading and how it works,” Badawy says.
This was not the case when he founded Rain with 29-year-old Abdullah Almoaiqel of Saudi Arabia and US nationals Joseph Dallago, 28, and AJ Nelson, 27. Sharing an enthusiasm for digital currencies, the four met online via social networks Twitter and Meetup. At the time, the Middle East was the only region without a licenced cryptocurrency exchange, and local interest was scant.
“Despite our concerted efforts, regulators either didn’t understand cryptocurrencies or weren’t willing to engage with us,” Badawy recalls.
Regulatory approval was important to widen the buyer base for cryptocurrencies in what was then an untapped market.
“We could have started in an offshore jurisdiction with a white-label solution. But we knew that for crypto to really become a key piece of daily life, it needed to be governed in a way that satisfies innovation but also existing regulation. That was the main driver,” Badawy explains.
When the Central Bank of Bahrain agreed to a cryptocurrency trial in 2017, Rain joined its sandbox programme for new financial technology solutions. Two years later, the venture became the Middle East’s first company to be licensed by an onshore regulator, joining an exclusive international group.
Last July, Rain closed a $2.5 million round of seed funding. Thousands of customers from over 50 countries now use its platform to buy, sell or store crypto-assets and fiat currencies in an ecosystem with bank-grade security.
Badawy draws parallels between Rain and early internet service providers (ISPs) such as America Online. He comments:
“We look at ourselves as the ISPs of the crypto industry. A thriving cryptocurrency ecosystem needs a service where people can onramp onto crypto. This is where we are providing the initial liquidity to the region, as the ISPs did for the internet. In the future, there will be other companies – and we hope that this happens – that come and build on top of this foundation layer.”
Entrepreneurs hoping to establish such new-wave financial institutions need more than deep pockets, according to Badawy. While these are essential, all startups also require discipline, perseverance and sheer hard work. As Rain has shown, a good idea and persistence can help a new industry take root.
“Anyone starting a business today should come to terms with the fact that unless they take steps that are beyond the average, they should not expect above-average results. That said, the startup ecosystem in the region has matured so much over the last few years that anyone with a good idea and the ambition to go after it will not be struggling,” he concludes.