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    Where to find the right spot to set-up your own virtual currency – a challenging task in a permanent evolving competition between countries and its jurisdictions

    August 2018

    Globally, the use of virtual tokens – crypto currencies – and crypto assets to raise funding through ICOs (Initial Coin Offerings) and to facilitate economic transactions has been on the rise in recent years. A number of countries like China and India for example banned the usage and transactions in crypto currencies, others have issued comments or consumer alerts through their financial services regulators. But all of these undertakings seem not to impress the crypto world and other countries in establishing legal frameworks which intends to attract entrepreneurs and financial institutions in setting up their corporations in these countries.

    Hedge funds as we all know go to the Cayman Islands, to incorporate. Big tech companies are generally domiciled in Delaware. And online poker companies often set up their bases in Gibraltar and Malta – all of this happens because of a certain legal-as well as tax environment. But in these days the race is on to become the go-to destination for cryptocurrency companies that are looking for shelter from regulatory uncertainty in the United States and Asia.

    Don’t be surprised that in small countries and territories including Bermuda, Gibraltar, Liechtenstein, Malta and even the United Arab Emirates, officials have recently passed laws, or have legislation in the works, to make themselves more welcoming to cryptocurrency companies and entrepreneurs. In Malta, the government passed three laws on July 4 so companies can easily issue new cryptocurrencies and trade existing ones. The financial Services Regulatory Authority of the Abu Dhabi Global Market in the United Arab Emirates published their Regulations of Crypto Asset Activities on June 25. In Bermuda this year, the Legislature passed a law that start-up companies which decided to go far on ICO (Initial Coin Offering) apply to the minister of finance for a speedy approval.

    The competition for cryptocurrency is part of a broader rush by governments to figure out how to approach a new industry that took on outsize prominence over the last year. Becoming a cryptocurrency center today has many potential upsides, including jobs and tax revenue. But the drive to be a cryptocurrency nexus also implies some risk as hackings and scams have followed the industry almost everywhere it has gone. And cryptocurrencies are hardly stable, with the prices of most having plunged in 2018 after skyrocketing last year.

    In China, the government banned cryptocurrencies, cryptocurrency exchanges and initial coin offerings (ICOs) after many of its citizens were swept up in the frenzy and bet their savings on digital tokens. Japanese authorities – even so working on their own cryptocurrency “J-Coin” – halted the operations of several cryptocurrency exchanges this year after one of the biggest licensed exchanges was hacked. In the United States, the head of the Securities and Exchange Commission, Jay Clayton, has warned that most companies that have raised money by selling cryptocurrencies have most likely not followed the law. But at the same time his agency has not provided clear guidance on the line demarcating legal and illegal projects.

    All of this has opened the door for smaller countries and territories to provide a friendlier and more welcoming environment, separate from private efforts – such as in Puerto Rico – to create cryptocurrency havens. And many of the regions’ moves are already having an effect, with dozens of companies – including the largest exchange in the world – announcing plans to set up offices in the small jurisdictions that have passed laws. Bermuda has been a leading player. Apart from passing the law to allow for the fast approval of initial coin offerings, the British territory has a law in the works to open the doors to cryptocurrency exchanges and related services. The Bermuda Government is modeling its approach in the crypto industry the same way it had taken with the insurance industry, in which Bermuda has become a major player. The island’s experience in international finance and the government’s willingness to listen to entrepreneurs and start-up companies is a big advantage as well, as the largest issue blockchain companies currently have does not know how they will be governed or regulated.

    Binance, the world’s largest cryptocurrency exchange, went shopping for a new location after Japan shut it down this year for operating without a license. The exchange, which is known for its desire to skirt regulations – the same stands for Bitfinex – , announced in March that it would open new offices in Malta with hundreds of employees as a result of the friendly laws the country had put into motion. One month later, Binance’s chief executive, Zhao Changpeng, traveled to Bermuda to announce that company would also open up compliance operations there and invest 15 million US-Dollars in the island.

    Many of the countries passing the new laws have said they are not interested in becoming a home for illicit activity. Albert Isola, finance minister of Gibraltar, a British territory, said his government was accustomed to making hard decisions after regulating online gambling companies for the last 25 years. Online gambling is responsible for around 3,000 jobs on Gibraltar, or about 10% of the territory’s population. Mr. Isola sees similar possibility in the blockchain technology, calling it “the next significant new flow of business.” Gibraltar is in the final stages before voting on regulations that, similar to Malta’s, would let companies issue and trade digital tokens.

    Liechtenstein, the Alpine nation between Austria and Switzerland, is also among the newer entrants to the race, with the prime minister circulating legislation called the “Blockchain Act” this summer to allow companies to sell tokens.

    The activity has spread to other areas, too. In the United States, Wyoming and Delaware have passed laws aimed at welcoming certain blockchain businesses, though they have been less focused on ones that trade in tokens. In 2014, New York State created a so-called BitLicense under which for example “Coinbase”, a cryptocurrency exchange in the US is operating.

    In Switzerland, the canton of Zug has also sought out cryptocurrency business, labeling itself Crypto Valley. Zug’s top economic official who worked on the effort, Guido Bulgheroni, few to the cryptocurrency conference in May that Mr. Burt also attended. So far, it’s a small world – but a fast growing one. At a cocktail party for Crypto Valley, Mr. Bulgheroni said his first job was to make sure that anyone with cryptocurrency project was happy there. How many other jurisdictions have that and that is exactly what entrepreneurs and start-up companies are looking for.

    At the end, the only advice we would like to give is that the crypto industry as well as blockchain technology is still in an early stage and that entrepreneurs as well as start-up companies should seek professional advice before finally choosing their “crypto spot” as new opportunities are almost happening on daily basis.