Global Cryptocurrency Crackdown Driving Search for Safe Havens
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Confronted with national regulators’ scrutiny of digital currency fund-raising, known as ICOs (initial coin offerings), many entrepreneurs are moving businesses to locations neutral or more welcoming to cryptocurrencies and known for low taxes.
Dozens of start-ups have flocked to Singapore, Switzerland, Eastern Europe and the Caribbean this year, according to interviews with entrepreneurs and company registration data made available to Reuters.
Like Bitcoin, the best-known cryptocurrency created in Y 2009, the coins use encryption and a blockchain transaction database enabling fast and anonymous transfer of funds without centralized payment systems.
The numbers compiled by cryptocurrency research firm Smith + Crown show how national regulators’ attempts to curb coin sales may just shift business elsewhere.
The United States leads with 34 digital currency start-up registrations YTD, but that reflects Silicon Valley’s role as a technology hub and the depth of US financial markets rather than a welcoming regulatory climate.
Singapore registered 21 entities, up from 1 in Y 2016, followed by 19 in Switzerland, up from 3 last year, according to Smith + Crown.
Central Europe saw 14 companies registered this year, compared with 1 in Y 2016 and the Caribbean hosted 10, up from 2 last year.
“The data affirms our sense that Switzerland and Singapore remain go-to locations, but the US could remain for companies raising large amounts of money,” said Smith + Crown’s research director.
Switzerland does not have specific rules on digital coin sales, but some parts of an offer may fall under existing regulations, the Swiss Financial Market Supervisory Authority (FINMA) said in September.
So far, four of the 5 largest token sales, raising a total of over $600-M, were carried out by firms registered in Zug, a low-tax region south of Zurich known as the “cryptovalley” of the world.
In contrast, China and South Korea banned digital coin sales this year and regulators in the United States, Malaysia, Dubai, United Kingdom and Germany warned investors that current scant oversight exposed them to risks of fraud, hacking or theft.
“We are talking to other regulators, and we know that there are a lot of bilateral discussions taking place,” the Dubai Financial Services Authority said in an e-Mail.
The Dubai regulator pointed out that seeking out friendly jurisdictions was not unusual, but regulators still needed to warn about the inherent risks in digital coin sales.
The ease with which start-ups can raise millions of dollars with little scrutiny in as little as mins, has alarmed regulators, but without unified approach they hold little sway over that new funding market.
The US Securities Exchange Commission (SEC) declined to comment about the migration of coin issuers to remote jurisdictions.
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