Switzerland the key to rehabilitating the tarnished crypto exchange
The BitMEX cryptocurrency exchange is looking to relocate from its current location in the Seychelles. Keystone
Beleaguered cryptocurrency exchange BitMEX is charting its revival in Switzerland after the platform and its three co-founders were indicted in the US.
This content was published on September 2, 2022 – 10:00 am
swissinfo.ch
The company has just received the green light to start operating its new brokerage unit in Switzerland as a self-regulated entity. But BitMEX has bigger ambitions in ‘Crypto Nation’ as it strives to distance itself from past controversies.
BitMEX CEO Alexander Höptner wants to build the Swiss business as a fully licensed securities dealer or crypto exchange. The former stock exchange manager in Stuttgart also has plans to rejoin the group from the Seychelles to Switzerland.
“Achieving self-regulatory status for our brokerage business is just a natural first step,” he told SWI swissinfo.ch. Self-regulatory organizations (SROs) act as a supervisory halfway house for financial institutions that do not deal in securities or offer banking services. Switzerland’s 11 SROs report to the Financial Market Supervisory Authority (FINMA) and ensure that their members comply with anti-money laundering laws.
“Switzerland was an extremely early mover with crypto regulation,” Höptner said. “The country has been very successful in attracting smaller companies, but has so far failed to attract any of the globally known large stock exchanges”
Switzerland currently hosts around 1,000 crypto companies, employing around 6,000 employees. But the Financial Supervisory Authority, keen to avoid money laundering scandals, has set the standard high for large operations. Until recently, crypto exchanges were required to apply for full banking licenses to set up in the Alpine state.
Rehabilitation plan
Last year, Switzerland updated its corporate and financial laws to embrace cryptocurrencies and other digital assets that run on blockchain – or Distributed Ledger Technology (DLT) – databases. This includes a new license category for DLT exchanges, which is attracting interest from some of the major global crypto companies.
Appointed CEO last year, Höptner is leading BitMEX’s rehabilitation from a regulatory bad apple to a compliant financial company.
Founded in 2014, Seychelles-incorporated BitMEX was once a global leader in the market for cryptocurrency derivatives – financial contracts that allow investors to bet on the future price of the underlying assets. The exchange was also a darling of the early cryptocurrency industry, which saw itself as an alternative to the traditional financial system, operating outside the reach of regulators.
That dream came crashing down when US authorities fined BitMEX $100 million (CHF97 million) last year for violating anti-money laundering laws. The three co-founders were recently hit with fines of 10 million dollars. Another former executive pleaded guilty to criminal offenses this month and was fined $150,000.
Respectable venues sought
Facing such regulatory backlash has become a common theme for the rebellious cryptocurrency sector. As investor interest in bitcoin has picked up, other exchanges and financial players have found themselves in the authorities’ crosshairs – sparking a rush of companies to respectable arenas.
For example, the world’s largest crypto exchange, Binance, is courting several countries for licenses and has found success in Dubai and France.
This has resulted in a game of regulatory arbitrage with several countries, including Switzerland, eager to build a significant domestic crypto industry without creating a reputation for allowing questionable practices to take place on their soil.
Höptner wants to move the BitMEX group headquarters away from the Seychelles to a less controversial jurisdiction. This will involve setting up a new corporate structure that distances the new BitMEX from its tarnished past. This boils down to a straight choice between Switzerland and Bermuda. “We need to choose a home turf where crypto and DLT are safely regulated but enable us to operate on a global scale,” Höptner said.
The biggest advantage that Bermuda has over Switzerland is a specific set of regulations related to the trading of crypto derivatives.
Höptner offers to help FINMA formulate such regulations in Switzerland. As in the traditional financial markets, the trading volume of crypto derivatives is much larger than the market for buying and selling cryptocurrencies directly.
“Structuring a law on crypto derivatives trading is a unique opportunity for Switzerland to take a globally leading position. But it is not an easy decision to make, said Höptner. “If everything goes well, everyone around the world will applaud you, but if something bad happens, you’re the big loser. It depends on the appetite of local legislators if they want to take such a beacon position.”
Failed bank acquisition
Should Swiss legislators and regulators play ball with BitMEX’s proposals, the company could employ up to 200 people in Switzerland, says Höptner.
BitMEX also has a lot to gain from finding a stable new home to operate from. Since its fall from grace, when US criminal charges were brought in 2020, the exchange has been overtaken by the superior trading volume of rivals.
And after launching new crypto trading services and an app, the company’s progress hit a snag this year when it was forced to abandon plans to buy German bank Bankhaus von der Heydt.
Höptner gave no concrete reasons for why the takeover failed. “Connecting BitMEX with Bankhaus von der Heydt’s licenses would be the perfect solution,” he said. “But sometimes an idea doesn’t work.”
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