Nicky Gomez

The crypto market has recently witnessed a substantial surge, reflecting a heightened interest in the potential of digital assets. The recent approval of spot bitcoin ETFs by the US Securities and Exchange Commission stands as a landmark event, signaling a step toward regulatory acceptance.&nbsp;



But despite this, the crypto landscape continues to face increased regulatory scrutiny. Companies are finding themselves at a crossroads — particularly in the US.



Operating in a regulation-by-enforcement environment is akin to building a house without a blueprint — it’s chaotic, unpredictable and increases the likelihood of failure.&nbsp;



To foster a healthy and thriving crypto industry, the US should take cues from its more nimble neighbours in the Caribbean. More open, communicative and collaborative regulatory strategies provide a more solid foundation on which crypto businesses can thrive.



<h2 class="wp-block-heading">The crypto regulatory landscape in the US</h2>



The lack of crypto-specific legislation or clear guidelines from regulators on how existing laws apply to crypto has left US crypto companies in a perpetual state of uncertainty.



Only four of the world’s top centralized crypto exchanges are reportedly <a href="https://www.vaspnet.com/articles/how-regulated-are-the-worlds-top-crypto-exchanges">regulated</a> by the SEC. Following ether’s transition to a proof-of-stake consensus mechanism, the SEC’s <a href="https://blockworks.co/news/ethereum-foundation-removes-warrant-canary">recent probe</a> into Ethereum Foundation, a non-profit supporting the Ethereum ecosystem, is yet another example of confusing US crypto policy.&nbsp;



Read more from our opinion section: <a href="https://blockworks.co/news/fca-pro-crypto-regulation-skepticism">No, the UK’s Financial Conduct Authority isn’t now pro-crypto ETF</a>



The US’ regulation-by-enforcement approach — characterized by an emphasis on execution over collaboration — makes operating in the country akin to playing a game without knowing the rules. It’s a frustrating experience for businesses trying to navigate the crypto space.&nbsp;



Instead of providing a stable and predictable environment, the current US regulatory stance often feels reactive, leaving companies to second-guess their strategies, stifling innovation in what’s become a booming, global economic market. And given the current political climate in the US and the upcoming election, it is unlikely we will see bipartisan support for any crypto-specific legislation until 2025 at the earliest.&nbsp;



<h2 class="wp-block-heading">The appeal of smaller, nimbler jurisdictions</h2>



Many US crypto companies have begun exploring other jurisdictions for their non-US business, alternatives that embrace innovation while fostering a cooperative regulatory atmosphere. This is evidenced by the fact that 79% of the top centralized exchanges <a href="https://www.vaspnet.com/articles/how-regulated-are-the-worlds-top-crypto-exchanges">registered</a> with the Financial Crimes Enforcement Network (FinCEN) are also regulated in at least one other country.



Regions with a quicker-moving approach to crypto regulation have taken the opportunity to lead internationally on the innovation of crypto regulation. For example, Gibraltar implemented the DLT Provider Regime back in 2018 and became the first jurisdiction to supervise crypto service providers with a principles-based regulatory framework. 



In addition, the allure of the Caribbean as a burgeoning crypto hub is hard to ignore. Several countries in the region are taking positive steps by reflecting on, learning from and working to adapt their existing crypto legislation.&nbsp;



On Feb. 13, the Ministry of Financial Services in the Cayman Islands <a href="https://github.com/MinistryFinancialServices/Virtual-Asset-Amendment-Consultation">launched</a> a consultation on amendments to the Virtual Asset (Service Provider) Act. The changes build on its existing registration regime focused on anti-money laundering, counter-terrorist financing, and cybersecurity. They also introduced a licensing regime for virtual asset trading platforms and custodians.



On Feb. 29, the Bermuda Monetary Authority (BMA) <a href="https://www.bma.bm/viewPDF/documents/2024-02-29-16-55-24-Notice---Consultation---Digital-Asset-Business-Custody-of-Client-Assets-Rules-2024.pdf">launched</a> a consultation on its proposed Digital Asset Business (Custody of Client Assets) Rules 2024, which will enhance its current regulatory regime for digital assets, providing further clarity on the BMA’s expectations of any digital asset business holding client assets.



In 2023, the <a href="https://www.linkedin.com/company/securities-commission-of-the-bahamas/">Securities Commission of The Bahamas</a> (SCB) held a consultation with key crypto stakeholders on its proposed Digital Asset and Registered Exchanges Bill. We anticipate the SCB’s revised regulatory regime will soon come into force. In addition to strengthening the existing regime, the bill proposes to bring more novel services such as staking under the regulatory remit, and includes specific provisions for stablecoin issuances.



By embracing the potential economic benefits of crypto innovation, countries such as the Bahamas, Bermuda and the Cayman Islands are actively courting industry leaders, offering a regulatory framework that balances regulatory objectives with the freedom to innovate.&nbsp;



<h2 class="wp-block-heading">The way forward for crypto regulation</h2>



2024 is set to be a huge year for the crypto industry. Progressive regulatory regimes allow innovative firms to flourish, while regressive ones punish good actors and create conditions for bad actors to capture market share.&nbsp;



The migration of crypto firms to these more adaptive jurisdictions signifies a broader shift in the industry’s landscape. While the US is home to many key players in the crypto space, firms are seeking out jurisdictions that not only understand the technology underpinning crypto, but also actively engage in collaborative efforts to shape effective regulations.



As the industry navigates these changes, it’s clear that jurisdictions willing to embrace innovation while working hand-in-hand with industry leaders will be at the forefront of shaping the future of crypto regulation.&nbsp;



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<div class="wp-block-post-author-biography">Nicky is the Senior Partner at XReg Consulting, a boutique public policy and regulatory affairs consultancy specializing in cryptoassets. A former regulator with 15 years of experience in the crypto and financial services industries, Nicky leads the development of XReg’s presence in the Americas, with a strategic focus on Latin America, the Caribbean and North America.

Since founding XReg, Nicky has supported governments and international public bodies with the development and implementation of risk-based, outcomes-oriented cryptoasset regulatory frameworks and strategies that mitigate risk and leverage smart innovation.

He also provides strategic regulatory advice to some of the largest crypto businesses in the world and has successfully secured licenses and authorisations for clients in Europe, Gibraltar, the Caribbean and Asia. As the co-chair of the Global Digital Finance (GDF) AML working group, he helps shape global cryptoasset regulatory standards that mitigate risk and encourage innovation.

Prior to founding XReg, Nicky spent over nine years at the Gibraltar Financial Services Commission (GFSC) as the Head of Risk and Innovation, where he was part of the team that led the design and implementation of the world’s first bespoke regulatory framework for firms using Distributed Ledger Technology (DLT).</div>


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America should look to the Caribbean for crypto regulation

James Cirrone

The Securities Commission of the Bahamas — the chief regulator responsible for overseeing the activities of FTX in its heyday — announced Tuesday that it was bringing back its fintech festival.&nbsp;



The festival, now set for October, was supposed to happen in January of this year, the Nassau Guardian <a href="https://thenassauguardian.com/securities-commission-brings-back-fintech-festival-for-october/">reported</a>. But the event, which “aims to spotlight the Bahamas as a nexus of innovation in the realms of digital assets, decentralization, and blockchain technology,” was postposted after <a href="https://blockworks.co/news/ftx-bankrupt-hacked-investigated-a-timeline-of-events">FTX collapsed and went bankrupt in November 2022</a>.&nbsp;



Organizers extended invitations to more than 800 builders, international regulators, investors, founders and thought leaders to discuss “the pillars of regulation, the building blocks of FinTech, and the steps to a successful digital economy,” according to a <a href="https://www.scb.gov.bs/wp-content/uploads/2023/07/Securities-Commission-of-The-Bahamas-Relaunches-D3-FinTech-Festival.pdf">statement</a> from the commission.&nbsp;



Bahamian Prime Minister Philip Davis added that his country is committed to facilitating “innovation and cross-border development.”



The statement made no mention of FTX, despite <a href="https://blockworks.co/news/ftx-debtors-recovered-7b">its bankruptcy still very much unfolding</a> and founder <a href="https://blockworks.co/news/ftx-this-week">Sam Bankman-Fried’s criminal trial still in progress</a>.



Read more: <a href="https://blockworks.co/news/campaign-finance-charges-against-sbf">US prosecutors drop campaign finance charges against SBF</a>



The Bahamian government appears to be treating the FTX disaster — <a href="https://blockworks.co/news/ftx-not-worst-bad-thing-in-crypto-this-year">an event that wiped out around $9 billion in wealth</a> when its native token FTT tanked — as a footnote in its quest to onboard digital assets into the global economy.&nbsp;



The defunct crypto exchange’s ties to the Bahamas officially began in September 2021 when <a href="https://blockworks.co/news/ftx-to-establish-substantial-presence-in-the-bahamas">it ditched Hong Kong to begin setting up its headquarters in the Caribbean nation</a>.&nbsp;



Concerning the move, Bankman-Fried <a href="https://blockworks.co/news/bahamas-becoming-crypto-hub">told Blockworks</a> at the time that the Bahamas had taken a “proactive stance” on cryptocurrencies regulation. At the same time Hong Kong didn’t have a clear regulatory framework, experts said.&nbsp;



In recent months, <a href="https://blockworks.co/news/crypto-exchanges-hong-kong">Hong Kong has become a hub for crypto companies</a> following its introduction of a crypto licensing regime.&nbsp;



The Bahamas had a buddy-buddy attitude toward FTX and Bankman-Fried as the company prepared to move to its shores and construct a $60 million company campus.&nbsp;



At a groundbreaking ceremony in April 2022, Prime Minister Davis said FTX left “positive footprints” throughout the country.



Read more: <a href="https://blockworks.co/news/did-the-bahamas-really-seize-billions-crypto-ftx-says-no">Did The Bahamas Really Seize $3.5B in Crypto? FTX Says No</a>



As an addendum to those comments, his administration rolled out a white paper called “<a href="https://web.archive.org/web/20220420153053/https://opm.gov.bs/the-future-of-digital-assets/">The Future of Digital Assets in The Bahamas</a>” on April 20, 2022. The document detailed a four-year vision, in which the commonwealth could become a leader in that sector.&nbsp;



That plan was interrupted on Nov. 10 of that same year when the Bahamas securities regulator had to step in and <a href="https://blockworks.co/news/bahamas-regulator-freezes-ftx-assets">freeze FTX’s assets</a>.



On Nov. 13, 2022, the Bahamian police launched an investigation to uncover potential criminal conduct. Later, <a href="https://blockworks.co/news/bankman-fried-set-for-us-extradition-to-face-monster-indictment">Bankman-Fried consented to extradition</a> and left the island nation to be prosecuted in the US.



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Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



Get alpha directly in your inbox with the <a href="https://blockworks.co/newsletter/research">0xResearch newsletter</a> — market highlights, charts, degen trade ideas, governance updates, and more.



The Lightspeed newsletter is all things Solana, in your inbox, every day. <a href="https://blockworks.co/newsletter/lightspeed">Subscribe to daily Solana news</a> from Jack Kubinec and Jeff Albus.