Binance, the world’s largest cryptocurrency exchange, recently announced that it is setting up shop in Malta following regulatory crackdowns in China and Japan – a move that boosts the small Mediterranean island’s ambitions to become a global hub for cryptocurrency and fintech.
The tiny island, with a population of only 450,000, may seem like an unusual choice of home base for a company used to operating in some of the world’s largest cities. But as governments around the world rush to regulate or even ban fledgling and speculative cryptocurrency exchanges, Malta is recasting itself as a safe haven for the digital currencies that have been denigrated in many parts of the world.
The Malta Gaming Authority (MGA) is testing the introduction of a digital currency in a controlled environment to see what risks, if any, it might expose Malta’s economy to. At the same time, the country is preparing to implement the world’s first blockchain legislation. With these moves, Maltese authorities are racing to stay ahead of competing countries, such as Gibraltar and Estonia, that are also looking to take advantage of the fact that many governments are rejecting cryptocurrencies and driving them beyond their borders.
Binance’s move from Asian financial hubs to Malta gives the tiny Island Nation a huge shot in the arm in terms of its legitimacy in the world of cryptocurrency. Binance Chief Executive Officer Zhao Changpeng, who built Binance—and a $2 billion personal fortune—in just 8 months, has said that his company will launch a “fiat-to-crypto exchange” in Malta and is close to securing a deal with local banks to provide access to deposits and withdrawals on the European island.
Mr. Zhao made it clear that Malta’s forward-thinking regulatory framework was behind the move: “Malta is very progressive when it comes to crypto and fintech,” he remarked.
Cracking down on cryptocurrencies
Regulators from China to the U.S. have been cracking down on cryptocurrency exchanges since late 2017, making it difficult for ventures such as Binance to establish a home base and forcing them into a nomadic existence.
Founded in Hong Kong, Binance was forced to move its servers to Japan. It was trying to secure a license to operate there when it was again pushed towards the exit by the country’s Financial Services Agency, before finding refuge in Malta.
The Maltese government certainly seems to be going all in on its plans to diversify its economy by becoming a centre for digital-asset ventures.
Joseph Muscat, Malta’s Prime Minister, enthusiastically tweeted “Welcome to #Malta @binance,” once the organization announced its move, adding: “We aim to be the global trailblazers in the regulation of blockchain-based businesses.”
Considering that Binance trades close to US$2 billion of cryptocurrencies a day, it’s easy to see why the exchange has been received with open arms in Malta. The island’s government is now creating a new agency known as the Malta Digital Innovation Authority to certify and regulate blockchain-based businesses and their operations. It will also create a regulatory framework to oversee initial coin offerings, known as ICOs. Mr. Zhao, Binance’s head honcho, personally reviewed several pieces of fintech legislation with Silvio Schembri, Malta’s Parliamentary Secretary for Financial Services, Digital Economy & Innovation.
Zhao’s meeting with Schembri left him “convinced that Malta will be the next hotbed for innovative Blockchain companies, and a centre of the Blockchain ecosystem in Europe”.
Schembri certainly shares Zhao’s assessment. The Parliamentary Secretary recently said that if all goes well, Malta will soon be known as “the Blockchain Island.” The last week has suggested that it’s well on its way. Following Binance’s announcement, other crypto companies are already following suit. The CEO of Tron, a Blockchain network specializing in entertainment which is currently based in Singapore, tweeted that his company was strongly considering moving to Malta in the coming weeks. He was joined by two other Blockchain-related companies, cryptocurrency credit card manufacturer Monaco and crypto exchange BigONE.
BigONE’s CEO referred to Malta as “Blockchain paradise”
Many analysts, regulators, and investors still remain sceptical of the technology. Not every cryptocurrency operation will be as well established as Binance. Along with the success stories will inevitably come start-ups with shaky business models and questionable investors. The prices for cryptocurrencies such as Bitcoin continue to fluctuate wildly (the currency has swung from a low of US$1,016.10 to a high of US$19,843.11 in the past year), leading some to speculate that it’s only a matter of time before the crypto bubble bursts and the market comes crashing down.
There are also serious security concerns to be dealt with. The incidence of Bitcoin exchanges being hacked rose 33 per cent from 2009 to 2016.
Hackers from rogue nations such as North Korea are now specializing in hitting cryptocurrency exchanges and traders to circumvent sanctions. In January 2018, one exchange, COINCHECK, lost US$530 million worth of digital currency because it failed to adequately safeguard against theft.
Many governments have panicked in the face of these inherent risks and tried to halt cryptocurrencies’ expansion by banning them or even criminalizing their use. Maltese officials have reacted differently, however. Joseph Cuschieri, executive chairman of the MGA, referred to cryptocurrencies as a “double-edged sword, combining opportunity with significant risks”. Major financial centres’ unwillingness to take a calculated risk has opened up an opening that small countries like Malta are more than happy to seize.
