Bermuda offers Pro-Crypto regulation in the middle of the US

Bermuda’s effort to establish itself as a crypto hub is a bold move that could pay off in the long run. Some firms and exchanges are already seeking to take advantage of Bermuda’s clear regulatory framework and promotion of innovation in the crypto industry.

Bermuda, an archipelago in the North Atlantic Ocean, is moving decisively to become a hub for cryptocurrency exchanges and firms. The island nation is known for its offshore insurance and reinsurance industry, and demonstrates its openness around the regulation of digital assets. Mainly to attract more crypto projects and players.

Proactive regulators

Bermuda has made an effort to set rules of the road for financial innovators. In 2018, it became one of the first jurisdictions to introduce a regulatory framework for initial coin offerings (ICOs). This required companies to obtain a license from the Bermuda Monetary Authority (BMA) before launching a token sale. The BMA also issued guidelines for digital assets and virtual currency exchanges. Thus outlines the requirements for companies in these sectors.

In 2020, Bermuda further cemented its commitment to crypto by passing the Digital Asset Business Act. This requires all businesses with digital assets operating in Bermuda to register with the BMA and comply with strict anti-money laundering and anti-terrorist financing laws.

Attract big players

Bermuda’s efforts have not gone unnoticed by the crypto industry. The island nation has already attracted several high-profile crypto ventures, including stablecoin issuer Circle, which moved its headquarters to Bermuda in 2019. Binance, the largest cryptocurrency exchange by trading volume, also announced plans to establish an office in Bermuda in 2018.

Last week, as part of its plan to expand internationally, Coinbase was granted a license to offer services in Bermuda. The Bermuda Monetary Authority (BMA) granted the American cryptocurrency exchange a Class F license. Thus, it can operate as a digital asset exchange in Bermuda.

Premier David Burt publicly praised the award of the licence. He stated in a tweet on April 19: “I am thrilled to see our island leading the ‘race to the top’ for regulation in this industry.”

Regulatory uncertainty at home remains the main reason some firms choose Bermuda. Recently, crypto exchanges and companies have left the US for jurisdictions that regulate cryptocurrencies in a friendlier manner.

Another player that could follow is Ripple. Currently, the fintech firm remains locked in a legal battle with the US Securities and Exchange Commission (SEC), with a ruling potentially coming at any moment. CEO Brad Garlinghouse warned in July 2022 that the company would move to another country if it lost its battle with the SEC. Meanwhile, crypto-lending startup BlockFi and crypto exchange Bittrex Inc. all have operations in Bermuda.

Understand the landscape

Bermuda’s push to become a crypto hub comes as the industry faces turmoil. The value of Bitcoin, the largest cryptocurrency by market capitalization, has experienced severe volatility in recent months. Falling from an all-time high of nearly $65,000 in April 2021 to below $30,000. Other cryptocurrencies have also experienced fluctuations in value, leading to increased scrutiny from regulators around the world.

However, Bermuda’s regulations are helping it weather the storm. By establishing clear guidelines for businesses with digital assets, the BMA provides security and stability that may be lacking in other jurisdictions. This could attract crypto firms looking for a stable regulatory environment, especially as officials in other countries take a more cautious approach to the industry.

“We are aware of the recent devaluation in the price of cryptocurrencies and remain confident that it does not threaten the island’s ability to become a crypto hub,” said Jason Hayward, Bermuda’s Minister of Finance and Labour. “This downturn in the industry is likely to advance our goal and positively impact our long-term growth and role in this sector.”

In addition, the region is one of the few jurisdictions worldwide to have adopted a comprehensive framework regulating cryptocurrency. Bermudan regulators say their understanding of international business, which makes up about 27% of the island’s economy and a trained local workforce, translates into a base for developing a thriving digital asset industry.

That puts Bermuda in competition with other jurisdictions hoping to lure crypto industry players and businesses.

Unique measures

Regulators here have adopted a unique approach. Combining a pro-innovation attitude with highly sophisticated risk analysis designed to prevent money laundering and terrorist financing. The BMA uses Chainalysis tools to try to ensure financial probity and regulatory compliance.

Bermuda’s focus on transparency and regulation may also help it attract institutional investors, who are increasingly interested in the crypto industry. High-profile institutional investors, including hedge funds and asset managers, have begun investing in Bitcoin and other cryptocurrencies in recent years.

Not coincidentally, as Bermuda has expanded outward from its long-standing identity as an insurance hub, transactional law firms such as Walkers and Carey Olsen, traditionally strong in other offshore jurisdictions, have opened offices in Bermuda. These companies know which way the wind is blowing and want to be part of some very lucrative deals.

However, many institutional investors need more time to enter the crypto market amid regulatory uncertainty and volatility. By providing a clear regulatory framework, Bermuda can attract these investors and help drive growth in the crypto industry.

Other global financial hubs are looking to the Bermudan example. Those with specific views on the matter include representatives of Conyers, an offshore law firm. Aside from Bermuda, several leading offshore financial centers, including the Cayman Islands and the British Virgin Islands (BVI), “have carved out their niches as popular and effective structuring jurisdictions for this growing and dynamic industry,” Conyer’s lawyers said recently.

Each of these jurisdictions claims to offer several benefits.

• a tax-neutral platform
• sound legislative and legal systems based on English common law principles
• stable, commercially minded governments
• flexible company structures
• experienced and responsive professional advisory and support services

Concerns and challenges

Bermuda’s push to become a crypto hub presents challenges.

The island nation is a relatively small market, with a population of around 64,000 people. This means it may be difficult for crypto firms to achieve significant scale in Bermuda alone. While Bermuda has successfully developed a regulatory framework favorable to the digital asset industry, it remains a relatively small jurisdiction with limited impact on global financial markets. But of course firms and exchanges registering in Bermuda are unlikely to do the bulk of their transactions locally.

Other major financial centers, such as New York, London and Hong Kong, may continue to play a more significant role in shaping global financial regulation. Jurisdictions such as Singapore and Switzerland are competing to become international crypto hubs and have established themselves as attractive destinations for crypto firms.

Furthermore, while Bermuda’s regulatory approach may serve as a model for other jurisdictions, each country has unique challenges and regulatory priorities. What works for Bermuda may not be the best fit for all players. Different jurisdictions will likely evolve their approaches to regulating the crypto industry based on unique circumstances.

However, Bermuda’s focus on transparency and regulation, favorable tax policies and well-established financial industry may give it an edge. If Bermuda can continue to attract high-profile crypto projects and firms, it could become a dynamic player in the global crypto industry.