Entrepreneurs Are Flocking to Europe to Open Cryptocurrency Businesses
Some smaller European nations are becoming jurisdictions of choice for cryptocurrency entrepreneurs
Blockchain and cryptocurrencies have been among the most polarizing words of the financial sector over the past few years. A prospective future, few competitors and little regulations are motivating entrepreneurs around the globe to open businesses that are related to this new promising technology.
In spite of the ongoing market downtrend, where some digital assets have lost up to 98 percent of their value, institutional investors are now starting to get their feet wet and are showing interest in getting involved in this market, as Goldman Sachs-backed Circle reported two months ago.
As new applications for Bitcoin's underlying technology are found on a daily basis and the enthusiasm of entrepreneurs rises, the search for favorable jurisdictions to open cryptocurrency businesses is becoming a main area of focus. Here is where Europe comes into play.
Death and taxes
Due to its significance for all kinds of companies and business people, the debate around taxes is possibly doomed to last for at least another century. Especially in highly industrialized countries like the U.S., Japan and China, financial regulations may appear imperious to startups and high net worth individuals. According to the Guardian, many American cryptocurrency investors are facing immense tax bills that they never expected and may not even be able to pay, given the recent market downturn.
As a consequence, many entrepreneurs are considering moving their business to a jurisdiction that offers a beneficial tax plan. While offshore locations like the Cayman Islands may seem like a good place to settle at first, many fear being excluded from global business by financial regulators.
In this case, some smaller European nations like Cyprus, Malta and Switzerland may provide a more suitable solution because of their very generous tax regulations. These cryptocurrency-friendly governments have already attracted a notable number of blockchain businesses and organizations -- including big names like the Ethereum Foundation -- and are respected members of worldwide trade actions.
Funding the future
Initial coin offerings prevailed as the favorite company funding method of blockchain businesses in 2017. In fact, ICOs brought in more than three times the funding to the space than venture capitalists in the previous year.
As more companies join this seemingly endless gold rush, regulatory entities like the U.S. Securities and Exchange Commission (SEC) are starting to take steps to regulate the ICO Wild West. Recent reports outline that subpoenas have been sent to dozens of ICO companies in the past months and that a few more, like Munchee and Protostarr, were directly shut down with the claim that the projects were selling illegal securities.
Some of these cases can be traced back to the fact that the U.S. has strict financial asset regulations, like exclusions of sophisticated investors or the obligation to register a security, that can be applied to the cryptocurrency space. In SEC Chairman Jay Clayton own words: "I believe every ICO I've seen is a security."
In order to avoid possible issues with the authorities, blockchain companies are often incorporated outside of the regulatory melting pots. Triggered by very welcoming legislations, Switzerland's canton Zug -- also known as Crypto Valley -- attracted blockchain enthusiasts from all over the world and became home to the likes of Ethereum, IOTA and other leading cryptocurrency foundations. Furthermore, due to recent regulatory clarification it looks like the tiny Mediterranean island of Malta is also about to become a major European epicenter for cryptocurrency projects.
Hide and seek
In April this year, the 1-year-old cryptocurrency exchange Binance, founded in Hong Kong, impressed the finance world by recording quarterly profits that exceeded those of Germany's biggest investment bank Deutsche Bank. However, the exact same exchange also just announced it is moving its headquarters to Malta, due to aggressive Chinese cryptocurrency regulations.
In addition to "traditional" cryptocurrency exchanges, tokenized security exchanges are also causing global regulators sleepless nights. Since running monetary exchanges requires supplementary licenses, many operators encounter concerning obstacles. In an attempt to bypass national limitations, another Chinese based crypto exchange called OKEx recently disclosed its plan to open a security token exchange in collaboration with Malta's biggest stock exchange.
Just like China is causing a lot of trouble for cryptocurrency exchanges, the United States is fairly tough on this subject as well. Andy Singleton, a security token expert, whose company Aboveboard just became the first corporation to issue its stock on the blockchain, told me in an interview that "U.S. regulators are completely blocking domestic security token exchanges." This is an unfortunate realization that many U.S. entrepreneurs come to, since security tokens could be a brilliant improvement to the current system. As Patrick Byrne, CEO of Overstock, puts it in reference to security token offerings (STOs): "It is a very clever offering, and could represent a whole new model for American entrepreneurship."
Way of life
The incentives of the blockchain industry could very likely lead to a progressing trend of international specialists joining the movement. Still, a dynamic terrain like this probably requires tolerant and thoughtful decision-makers.
As long as major economic powers, like the United States and China, continue to crack down on entrepreneurs in the space, small and flexible jurisdictions in Europe, such as Malta and Switzerland, will be among the main beneficiaries of the cryptocurrency revolution.