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From Belarus to Bahrain, the small states that are big on cryptocurrency

LONDON (Reuters) – When Belarus President Alexander Lukashenko met entrepreneur Viktor Prokopenya in March 2017, their discussion was scheduled to last for an hour, but went over three times as long.

Belarusian IT investor and entrepreneur Viktor Prokopenya is depicted in his office in London, UK on July 15, 2019. Picture taken July 15, 2019. REUTERS / Thomas Wilson

The meeting, said Prokopenya, concluded with Lukashenko ba him to propose regulations to strengthen the country's technology sector. Prokopenya worked with IT firms and attorneys to develop guidelines for raising money for an emerging digital industry: cryptocururrency.

A few years later, the rules are in place. Investors can trade bitcoin on a stock exchange run by Prokopenya, while other companies launch their own cryptocurrency platforms.

"The idea was to make everything from scratch," Prokopenya told Reuters in an interview in London. "To make sure it is free in some aspects it needs to be free and very strict in other aspects."

Contacted for comment, Lukashenko's office directed Reuters to an account of the meeting here on the president's website.

Belarus is among a handful of smaller countries that come with specific digital book rule books. Their efforts can help shape the development of the global market and the growth of industry players, from exchange platforms to brokers.

So far, cryptocurrency companies have often had to choose between two extremes when deciding where to establish a store.

Large financial centers such as London and New York, which use traditional financial services rules in the sector, may be attractive to large security-seeking institutions, but the complexity and costs of many exclude many of the start-ups in the heart of the new sector.

Conversely, easily regulated jurisdictions such as the Seychelles and Belize provide much easier market access. But states with light rules can offer less protection for investors and have looser checks on money laundering, lawyers say.

As Belarus and other recent actors – including Bahrain, Malta and Gibraltar – seek to offer a third way: create specific rules for the cryptocurrency sector, bet that they can attract companies by providing government security as well as benefits like tax breaks .

Although there is no guarantee of success, cryptocurrencies represent a rare chance for these states or territories to take a bite of an emerging market, potentially attracting investment and creating jobs, at a time when major economic hubs are deployed a more conservative, "wait-and-see" approach.

"There are jurisdictions in the camp-non-evil, hear-no-evil," said Jesse Overall, a lawyer at Clifford Chance in New York specializing in cryptography. "At the other end, it is the United States, Britain, the EU. In the middle, it is the succulent part of the spectrum."

Overall, both countries and companies could benefit from the emergence of frames especially for cryptocurrencies. rules may coincide with global rules to stamp illegal use of digital coins, he added.

Indeed, there are major questions about whether these nations will be able to consistently prevent hacks and illegal activities, such as money laundering, which plagues it opaque sector and can hamper their reputation as secure centers.

Another risk of building rules for an unpredictable and rapidly evolving industry is that they may soon become outdated.


ZPX, a Singapore-based crypto firm, launching a cryptocurrency trading platform, Qume, next month serving institutional investors as high-frequency proprietary trading companies and hedge funds.

It has determined to base the business in Bahrain capital Manama – and the considerations it faced are symbolic of the quarter that many industry players are confronted with.

ZPX CEO Ramani Ramachandran said it decided to operate in a so-called offshore jurisdiction with low or no regulation. Such a base can deter large investors when investigating digital coins warming up from global regulators and politicians, he said.

"As the market matures analogously to traditional capital markets, mainstream institutional capital will increasingly appear to come to regulated exchanges such as Qume as opposed to" light-touch "venues in offshore jurisdictions."

Bahrain launched rules in February for cryptocurrency companies as trading platforms, including strict customer control backgrounds, governance standards, and cyber security risk controls.

It is also usually much cheaper in terms of compliance and administration costs to establish in smaller places like Bahrain than at large economic hubs, Ramachandran said.

ZPX estimates such costs at around $ 200,000 a year in Bahrain, against at least $ 750,000 a year in London.

Another advantage of establishing in a smaller country, said ZPX co-founder Aditya Mishra, was the close communication companies could have with regulators, which would be difficult in a large financial center. Bahrain also offered good access to the Gulf markets, he added.

Another trading platform for cryptocurrency, iExchange, began operating in the Belarusian capital Minsk this month, aiming to attract investors from Russia and the former Soviet states.

Co-founder Igor Snizhko said Belarus was the best option because it had a regulatory framework that other countries in the region lacked.

Belarus requires audits of issuers of digital coins and details of the projects underlying issuance. For trading platforms, the rules include keeping track of suspicious transactions to meet international money laundering standards.

"For many, the CIS market is very promising and very dangerous at the same time," he added. – Many big and skilled players are still afraid of one factor – lack of transparency. We did not want to work in any ‘gray’ jurisdiction. "

Sweeteners offered by Belarus include tax cuts for companies such as mines or cryptocurrencies. The rules, described by PwC as "carrots without sticks," also give companies more loose rules on currency control and visas.

In the United States, on the other hand, digital coin transactions are taxable. In the UK, tax on profit is applicable.

iExchange said it had also initially looked at other countries, including Estonia and Malta, but chose Belarus because of its proximity to the target market.


The size of the global cryptocurrency sector is difficult to measure due to its complexity and lack of transparency. Still, Ireland-based research and markets are expecting the sector to grow to $ 1.4 billion by 2024 from $ 1 billion this year. Other estimates see a faster growth.

Crypto regulations vary throughout the world. While Facebook's unveiling of the Libra coin has led to signs of a coordinated setback against cryptocurrencies by major economies, it still holds a patchwork of land-to-country approaches.

China has even banned cryptocururrency directly, while an Indian government panel last week recommended a similar measure.

Sui Chung from the Crypto Facility, a London-based cryptocurrency futures exchange, said there were clear benefits to being in a major economic hub, including having access to skilled employees.

"You must be in place where you can get the staff," he said. "Our product teams, development teams have experience from financial institutions."

Being regulated in an established center can also give companies access to deeper, more liquid markets and provide greater security in securities law, said Ann Sofie Cloots, one of the authors of a Cambridge University study on cryptocurrency regulation.

"It may mean that you have a more sophisticated investor base, greater access to capital," she said. "It's also a reputation thing."

To be sure, it is not only the likes of Belarus and Bahrain who have coined their own crypto rules: Some major countries such as France and Japan have also made moves in that direction.

But it is the smaller countries that have tended to launch the most sophisticated "tailor-made" approaches, according to the Cambridge University study.

This can provide clarity for both cryptocurrency companies and related services such as banks that were previously alert to the sector's unclear legal status, Cloots said.

Slideshow (3 pictures)

Belarus entrepreneur Prokopenya, whose Instagram posts of sports cars in Cyprus and beaches in Dubai are followed by 5.6 million people, acknowledged the risks that came with blockchain technology, including the potential for money laundering.

But he said that these could be subdued with clear regulation and that countries like Belarus should not miss a chance to get a piece of an emerging market.

"The biggest risks come from not taking any risks," he said.

Reporting by Tom Wilson; Additional reporting by Andrei Makhovsky in MINSK; Editing by Pravin Char

Our Standards: The Thomson Reuters Trust Principles.

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