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IFCs, ICOs and Blockchain: Time to Pay Attention

July 2018 Chris Garrod

Initial Coin Offerings (ICOs) were introduced in or around 2016 and the Securities and Exchange Commission (SEC) in the US caught on quickly.  In 2016, a warning notice was issued to investors by the SEC stating that ICOs could be unlawful. China quickly banned ICOs in 2017.

Notwithstanding, the price of Bitcoin increased worldwide, rising from US$900 at the beginning of 2017 to US$20,000 by year’s end. By January 2018 however, there was dismay all around as Bitcoin’s price crashed 40 per cent. It then rocketed and crashed again. This volatility led to the issuing of further ‘buyer beware’ notices from regulators globally. Apart from the many warnings, cryptocurrencies remain unregulated in most jurisdictions.

So, What about IFCs?

IFCs are, to put it mildly, ‘at odds’ when it comes to cryptocurrencies.

Some, such as the Cayman Islands, appear to have simply adopted a ‘wait and see’ approach when it comes to virtual currencies, providing no guidance on substantive legal issues relating to them but warning investors of their potential issues.  Gibraltar is in the midst of drafting ICO regulation which will be ‘market driven’, focused primarily on token sales. The BVI’s regulator appears to have no appetite to regulate ICOs, but their legislation is broad enough to allow ICOs to launch in the jurisdiction. A FinTech and blockchain start-up, Bitt Inc., is in the process of launching the Eastern Caribbean dollar (ECCB) which will be a blockchain-based virtual currency serving Anguilla, Antigua and Barbuda, the Commonwealth of Dominica, Grenada, Montserrat, St Kitts and Nevis, St Lucia, and St Vincent and the Grenadines.  Jersey has legislation which anticipates the formation of token issuers and a regulatory sandbox for virtual currency exchanges. And in Bermuda, the government has dived into the virtual currency pool head first and is in the midst of adopting legislation relating to token issuers, and also virtual currency and digital asset exchanges, becoming one of the first IFCs to formally regulate digital assets in such a way.

In major financial centres, cities such as New York, regulated by the SEC, are faced with restrictions relating to securities solicited from unaccredited investors.  In the UK, the government has acknowledged the importance of blockchain and has created a crypto task force. In China and South Korea, ICOs are banned. In Japan, where they are welcomed, crypto has become a method of payment and has a huge trading market, albeit one which has also attracted hacking, a recent example being the January 2018 robbery of US$500 million in digital tokens from Tokyo based cryptocurrency exchange, Coincheck.

Singapore is a huge hub for ICOs, and Hong Kong is following suit. And then there is Switzerland’s ‘Crypto Valley’, the European version of Silicon Valley, which is attempting to embrace the culture and become a cryptocurrency hub.

Who are the leaders in the blockchain/cryptocurrency arena? In no particular order: Singapore, Jersey, Switzerland, Bermuda and Gibraltar.

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Chris Garrod
Director, Head of Fintech

Bermuda   +1 441 299 4923


This article was originally published in IFC Review.

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