On the one hand, awareness around virtual currencies is improving, and there is growing interest in them as an investment asset. A study from Juniper last year estimated that the value of cryptocurrency transactions surpassed $1 trillion in 2017, more than 15 times the level in 2016.
On the other, they appear to be a risky option best avoided and left to the professionals – only last week (17 January), the value of Bitcoin dropped below $10,000, almost 50% below its December peak, whilst the combined value of more than 1,400 cryptocurrencies in circulation fell to about $460bn from over $800bn at the start of January 2018 (CoinMarketCap.com).
As a forward-thinking jurisdiction, Jersey is always keen to work with partners on initiatives that shape our future, and there’s no doubt that in some way shape or form, virtual currencies and blockchain are key areas in the fintech space that are set to have a significant impact on the future business landscape.
From a jurisdictional point of view, there’s clearly a fine balance to be struck between encouraging innovation and trailblazing in the digital and tech arena, and adopting a prudent and pragmatic regulatory position.
On innovation, Jersey has form. The world’s first ever regulated bitcoin fund, for instance, was launched in Jersey back in 2014, sending out a clear message that Jersey was committed to playing a key role in the fintech space.
And last year, a crypto-denominated fund was established in Jersey which trades cryptocurrencies and other ‘coins’ and participates in selected ‘initial coin offerings’ (ICOs). Set up as a Jersey Private Fund structure, known to experienced and credible investors, it is proving an ideal vehicle for this sort of sophisticated fund.
Moreover, it’s now just over a year since Jersey’s virtual currency regulation was introduced – it has established a flexible and forward-thinking regime that creates a good business environment for virtual currency innovation, whilst also putting in place controls to help mitigate risks.
At the same time, the jurisdiction has been absolutely focused on creating a clear, certain and robust framework that is conducive to good practice as far as virtual currencies are concerned. That’s absolutely vital in such a rapidly evolving sector.
It’s useful to note, for instance, that amongst the hype surrounding virtual currencies and the specific emergence of ICOs in the past twelve months, Jersey’s regulator, the Jersey Financial Services Commission (JFSC), moved quickly to issue some useful guidance at the end of last year outlining the risks of ICOs to retail investors. The guidance focussed on the volatility of ICOs and their speculative nature. It’s a position that Jersey’s government has since echoed.
With all this in mind, it was fantastic to see at the end of last year the launch of Jersey’s first ICO, the ARC Reserve Currency, an asset-backed ‘stablecoin’ virtual currency. The co-founders claim that ARC is less volatile than other cryptocurrencies such as Bitcoin, as proceeds from the coin are ringfenced and invested into cash and fixed income assets. A forward-thinking approach.
Leading the way
It’s a hugely important and significant step forward in the responsible crypto space, plus, we are proud of the fact the co-founders opted to launch it out of Jersey. Even better, the co-founders referred to Jersey as “one of the most forward thinking and coordinated jurisdictions for cryptocurrencies”, commenting that they “would recommend the issuer of any potential crypto asset to consider starting their efforts in Jersey”. It’s a real endorsement from exactly the type of fintech innovation Jersey wants to be associated with.
The use of virtual currencies is on the rise and heading into the mainstream, and Jersey’s approach as a sound and sensible place for virtual currency development is positioning it well at the right time.
But it’s only part of the fintech story. Jersey is working with developers, experts and innovators right now to ensure it is ready to play a leading role in such a rapidly evolving area.
Supported by the excellent work being undertaken by Digital Jersey, we are working with them to focus on developments in areas such as cyber security and digital enablement. These are areas that, alongside virtual currencies, will undoubtedly play an increasingly important role in international financial services in the future in terms of better access to services, more bespoke advice, enhanced security, and more reliable due diligence. That sort of progress will benefit us all.