One of the crucial aspects when registering a cryptocurrency investment fund is choosing a jurisdiction with favorable conditions for conducting such actions. Below are the specifics of the legislation in some of the trending in-demand jurisdictions, which will be useful for entrepreneurs looking to form a crypto fund.
What is a crypto fund?
New financial technologies have become the foundation for the emergence of investment funds managing cryptocurrency possessions. These funds employ various strategies and have different operational styles.
A crypto investment fund works as a specialized entity providing a range of services to private investors interested in digital currency trading and investment. Distinct from traditional investment funds, these funds exclusively operate within the cryptocurrency market.
These organizations extend collaborative opportunities to potential investors, signifying that experienced professionals will manage their investment portfolios. Essentially, cryptocurrency market experts will execute digital currency exchange transactions on behalf of investors. Relying on their expert analyses, these transactions are anticipated to generate profits that directly contribute to the investors' digital wallets.
When someone decides to deposit in a crypto fund, they entrust their funds to be managed, and the company commits to handling these funds to increase them and timely distribute all profits. The responsibilities of these companies include:
- Competently forming the client's investment portfolio.
- Searching for potential earning opportunities.
- Selecting a management strategy.
- Investment analysis.
- Vulnerability analysis.
For those interested in creating a blockchain assets investment fund, it's essential to recognize that current crypto funds fall into two main categories. The first category includes funds that focus solely on investing in Initial Coin Offering (ICO) startups. Here, profitability is largely dependent on the growing popularity of the company's products. In contrast, the second category encompasses crypto hedge funds that primarily engage in cryptocurrency trading. Their profitability is shaped by market fluctuations and effective trading strategies.
Creating a crypto capital fund: choosing a jurisdiction
The cryptocurrency market is currently experiencing active growth. Within the EU, funds can be established as open-ended or closed-ended, as well as listed or unlisted on the stock exchange.
If you are interested in the question of where to establish a crypto fund, it is worth considering jurisdictions such as:
Switzerland stands out as a leading and favorable hub for fintech companies and the establishment of investment funds. Particularly noteworthy is the Canton of Zug, often referred to as the European "Crypto Valley," where conducive conditions for businesses engaged in tokenized finances are prevalent.
In a notable development in September 2021, Switzerland's financial regulatory authority sanctioned the country's first crypto fund, in accordance with prevailing legislation. This groundbreaking fund is under the management of Crypto Finance, a key participant in the regulated crypto asset fund sector. Partners from PvB are actively involved in overseeing fund management, while SEBA Bank is responsible for handling asset custody in this initiative.
This pivotal moment signifies a groundbreaking accomplishment, as FINMA, the Swiss financial governing influence, officially endorsed the inaugural Swiss fund with a primary emphasis on crypto direction. For those considering the creation of a digital fund in Switzerland, it is crucial to understand that the financial institution obtaining regulatory approval functions as an investment fund categorized under "other funds for alternative investments," as outlined by Swiss law. This classification inherently carries specific risks. Additionally, participation in this fund is restricted exclusively to proficient depositors.
Given the constituent risks related to cryptocurrencies, FINMA has attached certain conditions to the fund approval. Notably, the fund is mandated to invest solely in pre-approved cryptocurrencies exhibiting sufficient trading volume. This requirement ensures that the assets are liquid and possess a broad market demand, facilitating seamless buying and selling activities with minimal price impact. Usually these measures are for mitigation perils and enhancing the potential depositing success.
Moreover, those intending to commence a DeFi hedge pool in Switzerland should guarantee that capitalization in designated money is conducted via reliable counterparties and platforms located in a Financial Action Task Force member country. Strict adherence to relevant Anti-Money Laundering/Countering the Financing of Terrorism provisions is critically important in this context.
Opting to create a cryptocurrency fund in Malta holds significant promise. As a member of the EU, the country offers additional benefits for individuals considering the creation of a crypto fund in Malta.
As a recognized hub for money services and technology in the EU, Malta hosts a diverse range of enterprises providing financial services. The country's array of funds encompasses Professional Investor Funds (PIF), Alternative Investment Funds (AIF), and UCITS (Undertakings for Collective Investment in Transferable Securities). Under the Professional Investor Funds regime, the government has implemented additional licensing conditions, facilitating the establishment of funds, including PIFs, specifically designed for investing in crypto assets.
As indicated by the name, PIFs are targeted towards professional investors, so there are specific participation requirements and a minimum investment threshold for investors. Most PIFs are established as open-ended SICAVs, but they can also be closed-ended investment companies. In addition to the standard rules, when a Professional Investor Fund (PIF) invests in cyber currency, the following additional rules apply:
- All involved parties must possess relevant knowledge and experience in venture capital investments and the underlying technologies.
- Risk warnings must be associated with direct or indirect investments in venture capital.
- The designated investment manager must perform thorough research to estimate the "quality" of venture capital investments.
ConsulCoin Cryptocurrency Fund, the world's inaugural regulated European investment fund for listing blockchain-based companies and financial products, has secured a license from the financial regulator. This initiative is spearheaded by Magiston Funds Sicav Plc, a registered SICAV company in Malta. If you're considering launching a crypto fund in Malta and require licensing assistance, our specialists are available for consultation.
Gibraltar is increasingly becoming a preferred jurisdiction for creating investment funds that invest in crypto assets. Individuals and investment managers opt to create crypto funds in Gibraltar as the government has recently enacted new legislation aimed at leveraging blockchain technology, allowing for the creation of portfolio funds transacting in tokenized money. Specifically, Gibraltar's Experienced Investor Fund (EIF) regime is often advised a suitable type for DeFi funds.
The monetary landscape in Gibraltar is experiencing growing interest from investment pools targeting on crypto assets. This surge is evident through significant developments, including statements from the Gibraltar Financial Services Commission addressing funds dealing with digital assets. These statements shed light on essential challenges and evaluations, complemented by revisions to Gibraltar's EIF rules. In a recent development, the Gibraltar Funds and Investment Association introduced a specialized code of conduct for investment funds involved in blockchain money. This code outlines fundamental principles, covering responsible fund management, safeguarding customer interests, crypto asset storage, risk management, and other pertinent aspects.
EIF is an authorized coordinated investment plan designed exclusively for experienced investors, targeting a broad range of traditional or alternative asset classes. To commence raising capital and initiate investment activities, regulatory approval is not compulsory for the fund. The fund can be launched based on a legal opinion confirming that the fund complies with all legal and structural requirements for its operations, assuming that the fund documentation is submitted to the regulatory authority for registration within 10 working days of its launch.
Establishing a DeFi pool in the United Kingdom can be a costly but promising option, as this region is recognized as a fintech hub. The premier digitalized pool was approved by the government back in 2019. Overall, coins such as Bitcoin are regulated in the UK solely for anti-money laundering (AML) and countering the financing of terrorism (CTF) purposes. The fulfillment of AML/CTF policies by crypto pools is overseen by the Financial Conduct Authority (FCA).
The applicability of existing financial regulations to cryptocurrencies is contingent on the specific purpose for which the cryptocurrency is employed. In March 2018, the UK established the Cryptoassets Taskforce to discern such scenarios. Utilizing a diagram, the task force assesses the extensive usage of cryptocurrencies to determine whether such applications align with the prevailing regulatory framework. As per this framework, crypto-assets were categorized into three distinct uses.
- Barter use: functioning as a decentralized tool for trading goods and services or facilitating regulated payment services.
- Investment use: incurring indirect risks by storing and exchanging crypto-assets for firms and consumers with a direct impact.
- Supporting capital growth and/or creating decentralized networks through initial coin offerings (ICOs).
If you wish to establish a cryptocurrency fund in the UK, it is expedient to understand the specifics of the applied official regime beforehand. To obtain information on this matter, you can seek consultation on cryptocurrency supervision in the UK from our experts.
Liechtenstein is poised to emerge as a prominent digitalized area in Europe, drawing parallels with the Swiss Confederation and solidifying its status as a key fintech hub. Despite its small size, this country can boast a transparent dependable commercial area. The national monetary regulator is proactively working towards establishing a comprehensive regulatory system for crypto assets. Three years ago, regulatory approval was granted for three alternative investment pools designed specifically for engaging in depositing into crypto money.
Creating a tokenized fund involves navigating the regulatory landscape when conducting various operations with virtual currencies. Notably, local legislation does not provide a specific definition for cryptocurrency term. Starting a fund or any cryptocurrency-related investment entity requires awareness that Liechtenstein's Financial Market Authority (FMA) views blockchain assets as virtual money, exempt from specific regulatory oversight. Compliance with diverse licensing requirements is contingent on the fund's specific business model.
Liechtenstein has implemented comprehensive blockchain legislation designed to regulate a wide range of cryptocurrency operations and entities. This legal framework not only pertains to businesses initiating cryptocurrency hedge funds in Liechtenstein but also encompasses a diverse array of entities. This includes fintech companies, developers of blockchain projects, and those initiating initial coin offerings (ICOs). The legislation provides a robust structure for overseeing and facilitating various activities within the evolving landscape of blockchain and digital assets in the country.
The Cayman Islands have quickly become as one of the leading hubs for cryptocurrency funds, blockchain token allocations, and other digital products and blockchains. This is partly due to a friendly regulatory environment and attractive tax conditions. The jurisdiction boasts a well-developed commercial infrastructure, contributing to financial inflows and improved conditions for DeFi investments.
Last year, the Cayman Islands and the United States remained as two leading areas for DeFi hedge pools, despite a loss of market share. Existing legislation provides the opportunity for active development in cryptocurrency technologies, such as blockchain.
If you intend to create a crypto fund in the Cayman Islands, it is crucial to address several key questions related to fund structuring. This will help determine the optimal funding mechanism and regulatory status for the crypto fund in the Cayman Islands.
In May 2020, legislators enacted five reformed legal directives aimed at regulating the cryptocurrency segment. Particularly, the Virtual Asset Service Providers (VASP) Law was approved. It is designed to license and more effectively regulate cryptocurrency exchanges and custodial service providers. The new Cayman Islands cryptocurrency regulations align the jurisdiction's legislative structure with global AML/CFT efforts and FATF stipulations. This means that before establishing a cryptocurrency fund in the Cayman Islands, it is advisable to thoroughly understand the key requirements, which our specialized experts can assist you with.
Creation of a crypto fund in the USA
You can also register a crypto fund in the United States. The country has enacted laws promoting the use of DLT (Distributed Ledger Technology) and regulating more stringent regulatory requirements to ensure transparency and industry regulation. Launching a crypto hedge fund in the United States is a complex undertaking, especially considering the rapidly evolving and dynamic crypto industry and its associated legal landscape. Take, for example, decentralized finance (DeFi). Legislators and regulatory bodies continue to assess the legality of such assets and operations, but some funds are willing to incorporate DeFi into their investment strategy despite the associated uncertainty.
The blueprint of cryptocurrency investment funds undergoes careful sculpting based on the investment strategy's objectives, regulatory imperatives, and tax intricacies. Meticulously crafted organizational frameworks and distribution mechanisms aim to optimize efficiency for both fund managers and investors alike. In the realm of digital asset funds operating with U.S. taxpayers, the fund's operational architecture often aligns as a pass-through entity, subjected to partnership taxation, or adopts the structure of a limited liability company or limited liability partnership.
Creating a crypto fund in Australia
Another direction could be founding a crypto fund in Australia, whose legislative framework is currently acknowledged for operating most friendly towards cryptocurrency businesses. However, if you have decided to create a cryptocurrency fund in Australia, it's worth noting that in late October 2021, the Australian Corporate Watchdog stated that holders of underlying investment products in crypto assets will require a license under new guidance that enhances transparency and protects investors.
Australia's financial overseer, ASIC (Australian Securities and Investments Commission), has issued regulatory guidance on crypto assets and exchange products. ASIC emphasizes that Australian financial rules come into play when a crypto asset, fund, or trading platform fits the criteria of a financial product or service. Consequently, the majority of entities dealing with cryptocurrencies will likely need an Australian Financial Services License (AFS). We stand ready to assist in obtaining the required license for those planning to register a crypto fund in Australia.
If you are considering the Asian region and wondering where to register a crypto fund, alternative solutions could include establishing a crypto fund in Singapore, Hong Kong, or the UAE.
Singapore adopts an open stance towards cryptocurrencies and the oversight of crypto funds, recognizing the significance of blockchain innovations and virtual currencies in the contemporary landscape. The government aims to cultivate a conducive ambiance for the sector's growth, enacting regulatory measures and providing legislative frameworks to govern cryptocurrency fund activities, prioritizing transparency, user safety, and anti-money laundering efforts.
To operate within a regulated framework, crypto funds in Singapore must get a license from the Monetary Authority of Singapore (MAS). Adherence to specific rules and standards, encompassing capital requirements, risk management, client asset management, and reporting, ensures market stability and transparency, fostering investor confidence.
Creating a crypto fund in Singapore aligns with one of the most progressive regulatory models globally, promoting innovation and investment in the cryptocurrency sector while upholding regulatory standards and safeguarding stakeholders' interests. Singapore's government provides a transparent and competitive tax system, offering a selection of incentives and potential exemptions for the fund industry. It's crucial to note that, for tax incentives, cryptocurrencies themselves are not classified as "specified investments" in Singapore.
Hong Kong embraces a progressive stance on cryptocurrency, acknowledging its significance and potential in the monetary landscape. The government actively endorses innovative financial technologies, allowing cryptocurrency funds in Hong Kong to be accepted and recognized based on regulatory requirements. Renowned as a global financial services center, Hong Kong attracts a multitude of international investors.
Creating a crypto fund in Hong Kong can enhance its image among potential investors, as it may provide additional assurances and a level of regulation expected from such an international financial hub. This can instill trust in investors and help draw more capital to the pool.
Hong Kong's crypto fund and fund manager have the obligation to strictly adhere to anti-money laundering rules. This is an important measure aimed at preventing illegal financial transactions and protecting the interests of investors. In accordance with international standards such as FATF, funds need to establish transparent procedures and control mechanisms, as well as verify and document the sources of funds and transactions, especially if they pose a high risk of money laundering. This ensures trust from investors and contributes to the stability of Hong Kong's financial market.
The United Arab Emirates (UAE) has shown a commitment to establishing itself as a regional hub for crypto funds in recent years. Several new laws and programs supporting blockchain and cryptocurrencies have been enacted in the UAE. Some of these include licensing crypto exchanges in the UAE and providing legal status to crypto assets. These measures are intended to create a legal framework and regulatory transparency for cryptocurrency operations and investments.
The country has launched the Blockchain Strategy, with key goals including improving efficiency, security, and transparency in government processes and integrating blockchain into key industries such as finance, healthcare, education, and more. The Blockchain Strategy is part of the government's efforts to make the UAE a global leader in innovative technologies and the digital economy, attracting more investors interested in establishing crypto funds.
The UAE actively develops the financial technology sector, attracting fintech experts and organizing events and conferences that draw the attention of global leaders in the cryptocurrency field.
Dubai, one of the popular emirates in the UAE, is a preferred location for registering cryptocurrency funds. The emirate's administration actively supports innovations in FinTech. A successful Bitcoin fund from Canada operates on Nasdaq Dubai, increasing attention to cryptocurrencies from other investors and companies in Dubai.
Are there any other countries to be considered for DeFi fund registration?
Kazakhstan is actively developing its infrastructure in the branch of digital technologies, making it potentially advantageous to found a crypto pool in the country. It was one of the first countries in the CIS to establish a legislative framework for DeFi regulation. In 2023, the Kazakhstan government approved the Law on Digital Assets, defining the legal status of cryptocurrencies and regulating the activities of cryptocurrency organizations, including funds. This law provides legal protection for crypto companies and establishes rules for their operation.
Moreover, Kazakhstan offers propitious tax conditions for investors in digital assets, including cryptocurrencies. For instance, the profit tax on cryptocurrency operations is levied only once finances are withdrawn to fiat accounts.
To make a crypto fund in Kazakhstan, one can do so in the Astana International Financial Center. It provides an innovative and auspicious conditions for the development of various financial instruments, including virtual tokens and DeFi technologies. Arranging a crypto pool in the AIFC in Kazakhstan requires compliance with specific requirements and procedures. Investors need to register the fund in the AIFC International Registry and secure a license corresponding to their plans and activities in the cryptocurrency sphere.
Kyrgyzstan offers another potentially advantageous option for investors looking to launch a crypto fund. The country's government has officially recognized cryptocurrencies on a legislative level, creating new opportunities for the development of the digital economy. In 2022, Kyrgyzstan approved the Law on Virtual Assets, regulating operations involving cryptocurrencies, ICOs, and other digital assets. This law establishes rules for conducting business in the cryptocurrency market of the country, contributing to the development of the blockchain industry and attracting investments to the jurisdiction.
The legal framework acknowledges cryptocurrencies as property, thereby subjecting transactions involving them to regulatory oversight. This legislation establishes specific guidelines for offering services associated with the exchange, storage, sale, and acquisition of virtual assets. Entities involved in cryptocurrency operations within Kyrgyzstan, including crypto money, are mandated to secure a certificate from the regulatory body for the lawful conduct of their activities.
Starting a crypto fund in El Salvador could be also promising, considering the recent changes regarding cryptocurrencies. In 2021, El Salvador became the first country in the world to adopt Bitcoin as its official currency. This means that Bitcoin now has the same legal status as the national currency (U.S. Dollar). This has led to increased interest in registering crypto funds in El Salvador.
The ownership and trading of cryptocurrencies in El Salvador are regulated by the Bitcoin Law. It gives various privileges for investors, including exemption from income tax on cryptocurrency transactions and exemption from capital gains tax when buying/selling cryptocurrencies.
Establishing a fund investing in crypto assets can be a promising business decision, as the financial technology sector is rapidly evolving. If you need assistance in choosing a jurisdiction for registering your crypto business, you can turn to our specialized experts. We are ready to provide the necessary consulting and support services in the process of creating a crypto fund in 2024.