In recent weeks, there has been a lot of news regarding cryptocurrency exchange relocation. Bitfinex, the 7th largest exchange by trading volume, is in serious negotiations about moving from Hong Kong to Switzerland. Binance, the largest crypto exchange in the world, officially announced that it would relocate from Hong Kong to Malta.
Let’s try to understand more about exactly why these exchanges are moving and what this could mean for the future of cryptocurrency trading.
While increasing regulations in Hong Kong are a concern for many cryptocurrency exchanges, this is not necessarily the only reason that exchanges would want to move. In the case of Bitfinex, the company is looking to merge its operations, which are currently spread across several locations throughout the world. According to Bitfinex CEO Jean-Louis van der Velde, the move is about increasing the overall transparency of the company. After Bitfinex suffered from scandals like the Tether hack of November 2017, the company has had to move its capital from bank to bank. For the most part, these operations have had to be done in a silent manner. This has led some investors to grow skeptical of the company’s long-term future.
Where is Bitfinex based now?
While the official business headquarters of Bitfinex is based in Hong Kong, iFinex, Bitfinex’s parent company, is officially based in the British Virgin Islands. Due to global regulations on cryptocurrency exchanges, this type of legal separation is very common for most exchange companies. The fact that iFinex is a private company means that it doesn’t currently have to disclose financial data; however, van der Velde hopes to boost Bitfinex’s reputation by increasing the company’s financial transparency.
Impact of Bitfinex’s Potential Move
CEO Jean-Louis van der Velde wants to move the legal, financial, and customer services of Bitfinex to Zug, Switzerland. Zug is now being touted as the “crypto-valley”, a place where people can use crypto to buy every-day products and services. Switzerland is also aiming to reinvent itself as a “crypto nation” and has already established clear guidelines for ICOs. This also makes it an attractive place for cryptocurrency exchanges. Bitfinex wants to form a public company in Switzerland (known as an Aktiengesellschaft or AG). This could help Bitfinex to both ensure the financial security of its funds and to help grow its user base through the added financial transparency required of being a public company.
Binance, the top cryptocurrency exchange in the world by both daily trading volume and revenue, is actively trying to stay at this position. With increased competition from newer exchanges and the possibility of other popular exchanges like Bitfinex making big moves to increase overall business transparency, Binance hopes to innovate and relocate before the competition does.
No More Mystery: Binance’s New Location
Until recently, Binance’s location has been complicated to explain since it has no official location. While the main operations of the business are located in Hong Kong, Binance also has servers located in South Korea and Japan. This distribution across several locations throughout Asia added a lot of vulnerability to Binance’s long-term standing. Increased cryptocurrency regulations and even rumors about regulations in all of these locations have led some investors to question the future of Binance. For example, the Japan Financial Services Agency (JFSA) sent an official warning to Binance regarding the company’s lack of registration with the regulatory agency.
Before warnings from Japan, Binance had already faced issues due to China’s cryptocurrency ban. Also, recent talks between Hong Kong officials and Binance CEO Zhao Changpeng did not result in a promising outlook for the future of Binance’s main operations in Hong Kong. As a result, on March 23, 2018, Malta’s Prime Minister Joseph Muscat officially announced Binance’s relocation to the Mediterranean island nation.
Impact of the Move to Malta
In addition to making it easier for Binance meet all financial regulations, the move to Malta will also help Binance attract newer crypto traders. This is because Binance hopes to establish relationships with local banks so that it can offer fiat-to-crypto trading. This will ultimately make Binance even more accessible to traders around the world. Since this move will effectively solve regulatory issues, Binance hopes to focus greater attention to its technical innovation by working towards the development of its own decentralized exchange.
After Binance’s decision, many are now touting Malta as “blockchain island”. Malta itself is also seeing a lot of interest from major exchanges and cryptocurrency projects. For instance, Tron CEO Justin Sun is strongly considering the move to Malta. Malta’s legislators are currently in the process of establishing a Virtual Currency Act, which would give the nation a clear, pro-blockchain regulatory framework for both exchanges and cryptocurrency projects to follow.
Will other exchanges follow?
Many other cryptocurrency exchanges have begun either moving away from Asia entirely or actively seeking a place within Asia that will accept them. For example, Huobi had decided to move from Beijing to Japan until Japan’s SBI group cancelled the plan. Huobi is also rebranding itself in new markets (Huobi Pro in Hong Kong and HBUS Inc. in the U.S.). While exchanges are trying to comply with regulations, the reality is that national governments are just now beginning to determine how exactly they will regulate exchanges.
For now, it looks like several European countries are stepping up to welcome exchanges. The formation of clear, exchange-friendly regulations will not only benefit the future of exchanges themselves but could also also bring greater long-term stability to these platforms in the eyes of crypto investors. As exact regulations are still being determined throughout the world, Malta and Switzerland may very well global leaders in establishing the foundation necessary both for the future regulation of cryptocurrency exchanges and for the adoption of cryptocurrency in general.