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Now, I’ll have to admit, I’m not usually a huge fan of politicians.
In most cases, I see them as an obstacle to business and individual freedom.
But from the minute I met David Burt, the Prime Minister of Bermuda, I could tell that he was a very different breed of politician.
In fact, I found him to be one of the most amazing, intelligent and articulate people I’ve ever met. More than that, it was clear that he gets crypto and what crypto businesses need.
Not only is Burt the youngest Prime Minister in Bermuda’s history, but he also has an impressive track record as a developer, a startup founder and entrepreneur. Dare I say, he’s one of us.
In his talk at the Digital Currency Group Founders’ Summit, Burt shared how determined he is to make Bermuda the biggest crypto hub in the world.
And given his track record and the steps he’s taken already, I have to say, I believe him. Bermuda will undoubtedly be a major jurisdiction on the crypto scene in the coming years.
Read on in today’s article to learn more about the incredible steps the Bermudan government is taking to make the country the most crypto-friendly jurisdiction on the planet.
Regulatory Certainty for Crypto in Bermuda
One thing we’ve discussed frequently on this platform is the importance of regulatory certainty for businesses to thrive in a jurisdiction.
When the rules are clear, businesses know what to do and are not afraid to get started. However, when a regulatory environment is uncertain, a founder doesn’t know if one day they’ll be handed a million-dollar fine or possibly even sent to prison! With those kinds of chances, few dare to enter.
That was exactly the situation for crypto projects in the US until recently, and even today uncertainty permeates the entire crypto ecosystem.
Throughout 2018, the SEC had kept quiet on the subject of ICOs. There were whispers here and there, but nothing definite that companies could act on.
Then in November, the SEC announced that all ICOs were security offerings and began targeting unregistered ICOs for securities violations and handing them large fines.
Projects across the board were panicked that they could be targeted next.
But then a few months later, the SEC claimed that Ethereum’s ICO was not a security offering. Because even though ETH started as a security now it is a commodity.
Or in the words of SEC Chairman Jay Clayton himself, “[j]ust because it’s a security today doesn’t mean it’ll be a security tomorrow, and vice-versa…”
And so the crypto community fell into confusion once again.
So even though the SEC has clearly articulated that is using the Howey Test to determine if certain transactions are securities offerings, there is still a great deal of uncertainty as to how regulators will interpret the prongs outlined in the Howey test.
Meanwhile, in Bermuda, regulators took a different approach.
The same month that the SEC started going after unregistered ICOs, the government of Bermuda awarded its first ICO certification to the fintech company Uulala (UULA).
In the months leading up to this, Bermuda passed some important pieces of legislation designed to establish regulatory certainty for crypto projects.
The Digital Assets Business Act provided a simple licensing structure for all crypto-based businesses, explicitly including exchanges and wallets.
Meanwhile, the Companies and Limited Liability Company (Initial Coin Offering) Act 2018 was passed to establish regulatory certainty for token offerings of any kind.
So while the SEC acted unpredictably and created turmoil in the crypto business community, the Bermudan Monetary Authority took careful steps to establish a clear and welcome environment for crypto businesses.
Access to Banking for Crypto Projects
Sure, Bermuda is one of the few jurisdictions that has made a concerted effort to establish a regulatory framework around crypto. That said, they’re not the only one to have done this.
Other jurisdictions, like Malta and Zug, have also made strong efforts to establish clear and welcoming laws for crypto businesses.
But, what makes Bermuda stand out above the rest is that it has gone the extra mile to cover the needs of crypto businesses that might incorporate there.
In recent years, the primary challenge for crypto businesses has not been where to incorporate, but what comes after incorporation: the actual business operations.
In most cases, the biggest obstacle for crypto projects is to get set up with banking and insurance. For businesses in any other industry, this is almost automatic. But with crypto it’s a different story.
As one Insider commented about incorporation in the Cayman Islands, “Know Your Customer (KYC) requirements were already tough, but when the word ‘crypto’ was uttered it tripled in difficulty.”
Most banks have stonewalled crypto companies because they’re terrified of falling afoul of global KYC and AML regulations.
Bitcoin ATM manufacturer, Lamassu, wrote publicly about struggling to find a bank that would work with them for over a year. Keep in mind, they’re a hardware company that’s only tangentially related to crypto.
Meanwhile, insurance is an equally difficult challenge. As COO at Horizen Labs, while we’ve been lucky with our banking situation, I can tell you that it is incredibly difficult to get even the most basic insurance for a crypto-related business.
Aware of these challenges, the Bermudan government took a number of steps to change this.
Around the same time as the two pieces of legislation mentioned above, the government also passed an amendment to the Bermuda’s Banks and Deposit Companies Act to specifically encourage banks to serve digital asset companies.
Now, if a company passes the regulatory requirements to receive a license in Bermuda, the government almost guarantees that it will be able to get a bank account.
As an added bonus, Signature Bank in New York, announced earlier this year that it would specifically serve any FinTech firms registered in Bermuda.
As for insurance, Bermuda is already one of the top jurisdictions in the world for insurance. And Burt has mentioned previously in interviews that he believes insurance will be one of the most important factors to drive the development of the crypto industry. Not surprisingly, this is one of the reasons that Bermuda has been taking extra steps to work with insurance companies to accept crypto companies as clients.
Crypto Taxes in Bermuda
Last but not least, what’s the final thing a business needs to operate smoothly? The ability to pay its taxes and government fees.
Of course, for standard businesses, this is not a concern. But for crypto companies that operate primarily in crypto or who don’t have access to banking, the inability to get fiat currency to pay your dues can kill a company.
Earlier this year, legislation was optimistically proposed in California to allow cannabis companies, which have similar struggles with banking, to pay their taxes in stablecoin. This would have enabled the sector to avoid the banking industry altogether.
As much as I hope that this bill will be passed, I’d be quite surprised if it were.
So while companies in the US, from crypto to cannabis, struggle to find a way to pay their taxes, the Bermuda government has taken the initiative to ease the process.
That’s right, two months ago Bermuda became the first national government to accept tax payments in USD stablecoins.
(The municipality of Zug, Switzerland famously accepts Bitcoin for tax payments, but if based there you still have to figure out how to get fiat to pay the national government.)
David Burt has made it clear that he sees stablecoins and crypto as the future of the financial system, and he’s willing to put the government behind that vision.
What does this mean for Crypto Law Insiders?
At a time when most politicians have no clue what a “distributed ledger” is, it’s unbelievably refreshing to hear a Prime Minister actively working to promote the technology.
So for Insiders that are looking to start or invest in projects, you definitely want to have Bermuda on your radar.
This country’s leadership is not only crypto-friendly but determined to make the jurisdiction the top crypto hub in the world.
They’re doing this by encouraging an open business environment and actively trying to resolve all of the major challenges faced by crypto companies.
If a clear and welcoming regulatory environment, banking and insurance options, and even the ability to pay taxes in stablecoin aren’t enough to impress you, then you could always pick Bermuda for the white sand beaches. I wouldn’t blame you.