As the financial world appears to have fallen out of love with 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 French coast – are attracting crypto, blockchain, and other fintech firms thanks to 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, both islands had started competing for the booming asset class. Edmund Hatton, a fintech lead at Digital Jersey, told Insider he first noticed clients discussing bitcoin and crypto back in 2011.
Jersey has attracted firms including CoinShares, which manages assets worth around $3 billion. The Swiss-based group used Jersey to establish its crypto-backed Physical Bitcoin exchange-traded product in January 2021.
Meanwhile, Guernsey Finance’s chief executive made a recent trip to Miami, which has established itself as one of the US’s best-known crypto hubs.
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 the investment firm ZEDRA.
“We’re competing directly against Cayman, and we’re seeing the migration of US funds out of there,” he told Insider. “Brazilian and South American investors have fallen out of love with Cayman, and are moving capital to Guernsey.”
The Channel Islands’ push to lure crypto investors has coincided with a widespread retreat from digital assets over the last nine or 10 months.
Bitcoin has plunged 49.7% to just under $24,000 so far in 2022, while fellow large-cap token ethereum has slid 49.8% to below $1,900 – a far cry from their respective all-time highs of $69,000 and $4,867 less than a year ago.
Stocks have also plummeted in 2022, meaning that traditional investors are starting to doubt crypto’s effectiveness as a potential portfolio diversifier, particularly as consumer inflation has rampaged to multi-year highs around the world.
“Six months ago, you’d see portfolios with traditional equity, fixed income, and then maybe 2.5 to 5% crypto as an inflation hedge,” Lewis said. “But it looks like a terrible inflation hedge now.”
“I don’t feel like we’ve at all missed the boat,” ZEDRA’s Lewis told Insider. “Yes, crypto and digital assets adoption has been slow in the funds space, but we have to hope we’re well-placed for the next cycle.”
