- UK tax haven islands Jersey and Guernsey are stepping up their efforts to attract cryptocurrency and blockchain investors.
- They are competing with territories like Bermuda and the Cayman Islands by offering favorable tax regulations.
- Cryptocurrency prices have plummeted this year and investors are more choosy about where they put their money.
As the financial world seems to have fallen in love with bitcoin, the Channel Islands, a series 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 French coast, are attracting crypto, blockchain and other fintech companies thanks to their favorable tax laws.
None of the islands have capital gains or inheritance taxes, making them attractive locations for investment firms.
And even before crypto entered the mainstream, both islands had begun to compete for the booming asset class. Edmund Hatton, a fintech leader at Digital Jersey, told Insider that he first noticed clients discussing bitcoin and crypto back in 2011.
Jersey has attracted companies like CoinShares, which manages assets worth about $3 billion. The Swiss-based group used Jersey to establish its crypto-backed physical Bitcoin publicly traded product in January 2021.
Meanwhile, the CEO of Guernsey Finance made a recent trip to Miami, which has established itself as one of the most well-known crypto hubs in the US..
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 competing directly against the Cayman Islands and we’re seeing the migration of US funds out of there,” he told Insider. “Brazilian and South American investors have fallen in love with the Cayman Islands and are moving capital to Guernsey.”
The Channel Islands push to attract crypto investors has coincided with a widespread pullout from digital assets over the past nine to ten months.
Bitcoin has plunged 49.7% to just under $24,000 so far in 2022, while other large-cap tokens ethereal it has fallen 49.8% below $1,900, a far cry from their respective all-time highs of $69,000 and down $4,867 from a year ago.
Stocks have also tanked in 2022, meaning traditional investors are beginning to doubt the effectiveness of cryptocurrencies as a potential portfolio diversifier, particularly as consumer inflation has soared to multi-year highs around the world. .
“Six months ago, you would see portfolios with traditional stocks, fixed income, and then maybe 2.5-5% crypto as an inflation hedge,” Lewis said. “But now it looks like a terrible hedge against inflation.”
Longtime digital asset bulls tend to shrug off these sell-offs, arguing that a “crypto winter” can benefit the space by stress testing key infrastructure, consolidating major businesses, and fostering greater efficiencies.
That maturing of the space could increase investor 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, a partner at Jersey-based Oben Regulatory, told Insider. “That 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 now will put Jersey and Guernsey in an ideal position to benefit from the return of cryptocurrencies.
“I don’t feel like we missed the boat,” ZEDRA’s Lewis told Insider. “Yes, crypto and digital asset adoption has been slow in the fund space, but we have to hope that we are well positioned for the next cycle.”