The UK's offshore tax havens are quietly luring investors away from the likes of the Cayman Islands and Bermuda this 'crypto winter'




  • In Business
  • 2022-08-14 09:00:00Z
  • By Business Insider
jersey channel islands
jersey channel islands  
  • UK tax haven islands Jersey and Guernsey are stepping up their efforts to attract crypto and blockchain investors.

  • They're competing with territories like Bermuda and the Cayman Islands by offering favorable tax regulations.

  • Crypto prices have plummeted this year and investors are pickier about where they put their money.

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."

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 firms, and encouraging greater efficiency.

That maturation of the space could increase investors' appetite for low-tax jurisdictions like Jersey and Guernsey, experts said.

"In a crypto winter we could see 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's some optimism in the Channel Islands that a proactive approach to luring investors now will put Jersey and Guernsey in an ideal position to profit from a comeback in cryptocurrencies.

"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."

Read more: Puerto Rico's generous tax breaks and stunning beaches are attracting an influx of crypto entrepreneurs

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