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Cryptocurrency clamp down may encourage regulatory arbitrage

PUBLISHED : December 01, 2017 - 16:56

UPDATED : December 01, 2017 - 17:06

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[THE INVESTOR] As the race to clamp down on cryptocurrencies, like bitcoin, is heating up in major countries, industry experts are concerned it could encourage regulatory arbitrage, with talent and resources moving to countries that are more favorable. 

The range of rulings on cryptocurrencies differ among countries, from China which has totally banned initial coin offerings -- raising funds by launching new cryptocurrencies -- to Singapore and Switzerland with relatively eased regulations. 

 

From left: Zennon Kapron, managing director of Kapron Asia, Edmund Lowell, CEO of SelfKey, Cho Yi-seul, blockchain specialist, Henry Lee, Dayli Financial Group and John Riggins, head of operation at BTC Media



“In the future, we are likely to see the center of a lot of these (cryptocurrency) companies could be decided by regulations, fearing they will miss out on the requisite talent,” said John Riggins, head of operations at the US-based bitcoin media firm BTC Media at the Inside Fintech Conference and Expo held at KINTEX in Goyang, on the outskirts of Seoul.

“Singapore does lead the way (in regulation) and they could be the new Silicon Valley in this new technology.”

Blockchain-based startup SelfKey founder also thinks more small countries will see this regulation discrepancy as an opportunity against large countries like US, with an established banking system that makes it difficult to fully embrace cryptocurrencies, just yet. 

“I think there will be a regulatory arbitrage, where small jurisdictions will see this as an opportunity rather than as a threat to attract talent and smart people to their nation,” said Edmund Lowell, founder and CEO of SelfKey. 

Lowell also emphasized it is critical to work with governments to make them understand the product and innovation and work together to go forward.
 
“For the project to be successful in the long term, they have to work with regulators and be proactive with the government.”

Nathan Park, lawyer at US litigation boutique firm Kobre & Kim, stressed the importance of considering cryptocurrency regulations for all major markets with all players going forward. 

“The way to navigate the global regulatory scheme is to be aware of the regulatory structure in all the major markets where the company will be represented,” Park said. 

Regarding Korea, one of the world’s largest cryptocurrency markets, industry watchers are on alert after the government announced it is preparing to ban ICO, following the suit of China. They fear that toughened regulations will drive innovation away. 

“Traditionally, Korean regulators are very conservative in terms of such technological issues. They want to create more sandbox, test-bed environment to test things out and make sure everyday customers won’t get hurt by ICO,” said Henry Lee, manager at Dayli Financial Group. “But by seeking to protect customers, it can block innovation in Korea. It’s OK to regulate in your own country, but you have to know where you will fall behind other innovative countries that are promoting such technologies.”

By Ahn Sung-mi (sahn@heraldcorp.com)

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