Virtual Currency in Bermuda: An Update

In 2015, my colleague wrote a Legally Speaking column about virtual currencies in Bermuda, outlining how we were starting to hear about and experience them.

The conversation focused more on the nature of virtual currencies, i.e. an asset without a physical form, and less on how virtual currencies could be integrated into Bermuda.

The column explained what a virtual currency is and identified some of the ways in which it may be utilised to complement Bermuda’s already thriving reputation as a place to do business, while also outlining some of the obstacles that would need to be considered in order to do so successfully.

Today, I will review the main points highlighted in 2015 and discuss how both this sector and Bermuda law has evolved since then.

In the earlier column it was suggested that like gold, investors may want to invest in convertible virtual currencies by buying interest in a fund and that a Bermuda regulated vehicle could provide this opportunity.

Truer words were never spoken.

Since 2015, there has been an explosion in both the value and number of crypto currencies.

Let’s take Bitcoin, the most notable and widely known crypto currency today. In 2015, it peaked in value at more than $300, a whopper of a number at the time.

A mere six years later, Bitcoin had a peak value at more than $63,000 and today its valuation is more than $35,000 which, notwithstanding its recent dip, still represents a considerable increase from its record high in 2015.

To those of you who bought in 2015 and continue to hold today, I say congratulations!

A Financial Times article on January 10 said that gold stocks held above ground amounted to 198,000 tonnes at the end of 2019, with about 57,000 tonnes of proven reserves below ground. This total stock would value at about $17 trillion in
today’s price.

The latest market value of Bitcoin is about $0.6 trillion — and although regulators are not worried about crypto currencies competing with gold as a store of value stranger things have happened in financial markets.

For these reasons Bermuda does not want to miss out and as a result there has been an influx of legislation.

The Investments Funds Act 2006 was flexible enough to allow tokenised funds, or funds that hold digital assets, to apply to the Bermuda Monetary Authority for authorisation or registration to operate as a fund and, as such, be subject to the ongoing supervision of the BMA. Virtual currencies form a part of the wider legal definition of digital assets used in Bermuda.

In 2015 there was no legislation here that specifically contemplated or provided for the use of digital currencies or business activities that are associated with owning, selling and issuing such assets.

However, since 2018 Bermuda has seen a spell of undertakings in relation to digital asset legislation.

Government triggered development of the island’s fintech sector by announcing its plan to develop a legal and regulatory framework and passing the Digital Asset Business Act 2018, which allowed for a framework of regulation around digital asset businesses.

In addition, it passed the initial coin offering regime, which was embedded in the Companies Act and limited liability company legislation. The Companies and Limited Liability Company (Initial Coin Offering) Amendment Act 2018 provided for companies registered in Bermuda and willing to meet the applicable criteria to seek permission to issue digital assets to the public.

Government’s commitment to developing Bermuda’s fintech sector can be emphasised by the recent changes in the ICO regime.

On May 6 2020, Government enacted the Digital Asset Issuance Act 2020, which replaced the ICO regime as the primary legislation for all digital asset offerings in or from Bermuda.

Because of this framework, digital asset issuances can be conducted in Bermuda, meaning that the public can be offered digital assets from companies incorporated here and companies incorporated here can raise capital through digital assets.

In summary, the legal landscape in Bermuda has come a long way since 2015.

With the development of legislation and regulatory tools, Government has embraced blockchain technology while attempting to minimise the risk associated with this sector as best as possible.

Today, and in the future, Government aims to work with industries and is committed to building a comprehensive framework to ensure that fintech thrives and grows here.

In just six years, legislation has changed tremendously and there is a lot in the virtual currency realm we can do now as a jurisdiction.

Government continues to capitalise and adjust our legislation to make Bermuda a friendly place for digital asset business and the activities associated therewith.

A new asset class has arisen that nobody can touch, but can profit from.