- UK tax havens Jersey and Guernsey are stepping up their efforts to attract crypto and blockchain investors.
- They compete with territories like Bermuda and the Cayman Islands by offering favorable tax regulations.
- Crypto prices have fallen this year and investors are more discerning about where they put their money.
With the financial world seemingly losing its love for bitcoin, the Channel Islands – a string of small British Overseas Territories – are quietly offering crypto investors incentives to move their money from more traditional tax havens.
Jersey and Guernsey – located off the coast of France – attract crypto, blockchain and other fintech companies with their favorable tax laws.
Neither island has capital gains or inheritance tax, making them attractive locations for investment firms.
And even before crypto entered the mainstream, the two islands had begun to compete for the booming asset class. Edmund Hatton, head of fintech at Digital Jersey, told Insider that he first noticed customers discussing bitcoin and crypto in 2011.
Jersey has attracted companies such as CoinShares, which manages assets worth around $3 billion. The Swiss-based group used Jersey to establish its crypto exchange-traded product Physical Bitcoin in January 2021.
Meanwhile, the managing director of Guernsey Finance recently visited Miami, which has established itself as one of the best-known crypto hubs in the United States.
It’s part of an effort to lure Western crypto investors to the island and away from rival tax havens like the Cayman Islands, according to Barney Lewis, a Guernsey-based fund manager at investment firm ZEDRA.
“We’re in direct competition with the Caymans, and we’re seeing the migration of American funds out of there,” he told Insider. “Brazilian and South American investors are no longer in love with the Caymans and are moving capital to Guernsey.”
The Channel Islands push to attract crypto investors has coincided with a widespread withdrawal from digital assets over the past nine or ten months.
Bitcoin has plunged 49.7% to just under $24,000 so far in 2022, while fellow large-cap Ethereum has slipped 49.8% to under $1,900 – a far cry from their highs respectively of $69,000 and $4,867 less than a year ago.
Stocks have also fallen in 2022, which means traditional investors are beginning to doubt the effectiveness of crypto as a potential portfolio diversifier, especially as consumer inflation hit multi-year highs in 2022. the world.
“Six months ago you would see portfolios with traditional stocks, fixed income, then maybe 2.5-5% crypto as an inflation hedge,” Lewis said. “But it looks like a terrible inflation hedge now.”
Long-time digital asset bulls tend to ignore these selloffs, arguing that a “crypto winter” can benefit the space by testing key infrastructure, consolidating big business, and encouraging greater efficiency.
This maturing of the space could increase investors’ appetite for low-tax jurisdictions like Jersey and Guernsey, experts said.
“In a crypto winter, we could see the consolidation of crypto projects,” Jonathan Van Neste, partner at Jersey-based Oben Regulatory, told Insider. “This would lead to a much more diversified investment opportunity in the crypto, blockchain and DLT space.”
And there is some optimism in the Channel Islands that a proactive approach to attracting investors will now put Jersey and Guernsey in an ideal position to enjoy a comeback in cryptocurrencies.
“I don’t feel like I missed the boat,” ZEDRA’s Lewis told Insider. “Yes, the adoption of crypto and digital assets has been slow in the fund space, but we have to hope that we are well positioned for the next cycle.”
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