British Virgin Islands and Cayman Islands offer opportunities for cryptocurrency issuers and investors
For both investors in and issuers of cryptocurrency tokens, the British Virgin Islands and Cayman Islands offer a flexible regulatory environment that makes them attractive territories for this market … for the time being, at least.
The British Virgin Islands (BVI) cryptocurrency market is the second largest in the world. With a trading volume of USD78.5 billion in crypto assets in the first six month months of 2018, it was USD5.3 billion behind the US, the largest market with USD83.8 billion in traded assets.
As cryptocurrencies and blockchain technologies are recognized by the BVI Financial Services Commission (FSC), leading fintech companies, including Bitfinex, Finamatrix and Football Coin, have chosen to incorporate in the BVI.
Cayman Islands also seeing increased activity
The Cayman Islands is also seeing increased interest and activity in this market. The Cayman Islands Monetary Authority (CIMA) is therefore keenly observing both local and international trends.
Much of this activity has been in the area of initial coin offerings (ICO) and initial token offerings (ITO). For investors, these are avenues of accessing third-party capital. Instead of a security whose return is dependent on the performance of the business of the issuer, as in a traditional IPO, in an ICO/ITO investors exchange cash for a new cryptocurrency on a blockchain network.
Most investors will hold the tokens in the hope that the success of the underlying enterprise (in which the new utility token will be the sole or principal unit of exchange) will cause the cash value of the utility token to increase as demand for those tokens for use within the application increases and their potential being accepted as wider means of exchange increases.
No specific cryptocurrency rules in either territory
As yet, neither the FSC nor CIMA has any specific regulations relating to cryptocurrencies.
The FSC believes – rightfully so – that its current Securities and Investment Business Act (SIBA) and anti-money laundering legislation are sufficient for regulating important aspects of cryptocurrency service providers.
Approaches to initial coin offerings and initial token offerings
In the BIV, initial coin offerings (ICO) and initial token offerings (ITO) are not subject to SIBA, as the utility tokens (the digital token of the cryptocurrency) are not considered a security for the purposes of investor protection.
CIMA takes a similar view and approach, and legislation in the Cayman Islands is similar to that in the BVI.
Each jurisdiction has multiple options for investment services and various vehicles such as public funds, private funds, professional funds and the BVI’s popular approved and incubator funds.
Benefits of issuing and investing in cryptocurrencies in the BVI
In the BVI, ICOs are executed through an ICO issuer that’s incorporated as a BVI business company under the BVI Business Companies Act, 2004. Using these issuers offers all the advantages associated with a BVI business company.
In addition, the issuer is incorporated in a jurisdiction with no capital control and maintenance rules, allowing for the free flow of funds in and out of the issuer.
For transactions conducted exclusively on electronic platforms, an important added bonus is that the BVI’s Electronic Transactions Act 2001 allows for electronics signatures and has record-keeping requirements.
In the Cayman Islands, ICOs are issued through a Cayman Islands exempted company.
Making the right move
While, for now at least, both territories offer a great degree of flexibility and freedom, ICO and ITO enterprises must carefully evaluate all aspects of their business that may fall within the ambit of existing legislation and regulations.
They will also need to stay ahead of regulatory developments in the market, as it’s unlikely that the current environment will stay as it is for long.
With offices and associates in multiple jurisdictions including BVI, Cayman Islands and Mauritius, Osiris is well positioned to assist companies seeking to invest in cryptocurrencies or entities seeking to issue an ICO or ITO. For more information on our services, please contact us.
 CoinShare: H1 Crypto Report (2018). The report is based on data compiled by Cryptowatch, a real-time cryptocurrency market data provider owned by Kraken, the San Francisco cryptocurrency exchange.