Two of the world’s largest cryptocurrency exchanges plan to make the tiny European nation of Malta a central hub of their operations, and analysts say others are sure to follow. Officials on the Mediterranean archipelago, the European Union’s tiniest member, are aiming to boost its fortunes by becoming one of the world’s friendliest jurisdictions for a sector that’s caused concern among other regulators.
1. What explains Malta’s appeal?
At a time when countries around the world are expressing ambivalence about cryptocurrencies, if not cracking down on them, Malta is writing rules that should give exchange owners and users certainty about the future. The rules will cover how brokerages, exchanges, asset managers and traders operate, making them among the broadest set of regulations for the industry. “The proposed framework will offer legal certainty in a space that is currently unregulated,” the government said in a consultation paper. A national tax policy that permits international companies on the island to pay a rate of as little as 5 percent doesn’t hurt, either.
2. What does Malta get in return?
Prime Minister Joseph Muscat said he believes cryptocurrencies are “the inevitable future of money” and will form the base of a new economy in the future. Even in the short term, the arrival of cryptocurrency companies brings jobs and the economic activity they spur. Binance, the world’s largest crypto exchange by traded value, said it will "eventually hire up to 200 people" in Malta to carry out its relocation from Hong Kong.
3. What does this mean for cryptocurrency investors?
Transparency and legal certainty should be a positive for an industry that’s suffered from fraud, hacks and sudden regulatory crackdowns. But Malta’s recent economic success has been overshadowed by corruption and money-laundering scandals, including the death of a journalist who wrote about alleged graft in the highest ranks of the government. Some European Union lawmakers have raised doubts about Malta’s rule of law, a point strongly challenged by Muscat.
4. How do Malta’s rules compare with those of the EU?
The EU is looking at cryptocurrency regulation but so far hasn’t issued any details. That’s given Malta the chance to take the lead in drawing up its own framework. If the EU develops a more coordinated, and tougher, regime for cryptos, that could mean Malta becomes less accommodating. Malta is also trying to attract blockchain businesses, a strategy that may insulate it from any broader digital-currency fallout.
5. What does Malta’s push mean for other crypto hubs?
Malta is trying to pull the center of the crypto-trading world to the west. Japan, South Korea and Hong Kong host multiple exchanges and Asia-based investors are a large chunk of global trading. Amid last year’s crackdown by China, Japan took a crypto-friendly stance that’s been challenged by theft and fraud, and while authorities are still open to digital currencies, they have stepped up their scrutiny of exchanges. Regulatory uncertainty in South Korea and Hong Kong may put them at a disadvantage if Malta gains in popularity. In Europe, there may be competition from Switzerland, another low-tax country. The Swiss Financial Market Supervisory Authority said it will regulate some initial coin offerings and has started a so-called crypto valley in the canton of Zug.
6. Are other companies also looking for a Mediterranean base?
Yes, and increasingly so after Binance’s announcement. As well as rival exchange OKEX Technology Co., Berlin-based blockchain firm Neufund and The Abyss, which operates a gaming platform which incentivizes users to earn digital currencies, said in early April they would set up in Malta. In March, Justin Sun, the founder of U.S. blockchain company Tron, said his firm was “seriously considering” investing and operating in country. “We anticipate that more outfits will be looking at Malta, and the interest will be on a wider spectrum and not exclusively cryptos,” said Ian Gauci, Malta-based partner at GTG Advocates.
The Reference Shelf
— With assistance by Grant Clark