Review of opportunities for cryptocurrency activities in 2024
The crypto business is at the peak of its popularity. Cryptocurrencies such as Bitcoin have increased their value significantly recently, attracting many new participants to the market. Investors see the potential of cryptocurrencies as an opportunity for high returns and diversification of their portfolio. Trust management of cryptocurrencies by professional managers can be a useful solution for investors. Creating a crypto fund is one of the ways of trust management of cryptocurrency assets.
The publication deals with the legal formalities of registering a crypto fund, as well as where to open a cryptocurrency fund in 2024.
The concept of a crypto fund and how it functions
A crypto fund is an investment instrument that allows you to invest in a specific set of cryptocurrencies. A cryptocurrency investment fund can be structured in various ways. It can be created as a closed-end or open-ended crypto investment fund, traded on an exchange, or offered only to specific investors. Crypto funds can use a variety of investment strategies, including passive investing, active portfolio management, etc.
Advantages of registering a crypto fund
Creating an international crypto fund can be an interesting and promising project. Cryptocurrency funds allow investors to profit from rising prices of cryptocurrencies, promising development of startups and other investment opportunities in the field of digital assets.
Overview of the advantages of registering a crypto fund
These benefits highlight the importance of a structured and regulated approach to cryptocurrency fund management. However, it's essential to emphasize that the advantages can indeed vary significantly depending on the jurisdiction and its specific regulatory framework. Here's a summary of the key advantages:
- Variety of Fund Types: Offering various fund structures provides flexibility for investors to choose the most suitable option for their financial goals and risk tolerance, increasing the appeal of the fund.
- Investor Protection: Compliance with AML and CFT regulations, along with other regulatory measures, enhances investor confidence by ensuring that the fund operates with transparency and adheres to legal standards. This, in turn, helps protect investors from fraudulent activities.
- Legal Transparency: The legal procedures and checks involved in registering a crypto fund contribute to transparency. Investors gain access to comprehensive information about the fund's strategy, management, and associated risks, enabling them to make informed decisions.
- Access to Markets: Registration can grant access to markets that may be restricted for unregistered funds or investors. This can be particularly beneficial for attracting institutional investors, who often have limitations on investing in unregulated products.
- Attracting Institutional Investors: Institutional investors typically prefer regulated products, making registered crypto funds more appealing to this investor group. Attracting institutional investment can lead to increased capital inflow and a broader investor base.
- Potentially Lower Setup Costs: While there are costs associated with registering a crypto fund abroad, these costs may be lower compared to establishing a traditional fund. The flexibility in structure and regulatory requirements can reduce barriers for property management companies entering the market.
- Independent Minimum Investment Requirements: Registering a fund provides the management company with the autonomy to set minimum investment amounts. This control allows for effective management of the investor base and ensures alignment with the fund's strategy.
Types of cryptocurrency funds
Cryptocurrency funds are classified into different types. We provide a brief description of the types of fund structures.
In most countries, it is necessary to comply with AML and KYC regulations. Investors also require a cryptocurrency fund license from financial regulatory authorities. It's crucial to know the specific jurisdiction to ensure compliance with local laws and regulations.
European direction for registering a cryptocurrency fund in 2024
Creating a cryptocurrency fund in Europe offers several attractive options, each with its advantages and considerations. Here's an overview of the popular European jurisdictions for establishing a crypto fund in 2024, based on the information provided:
- Fintech-Friendly: Liechtenstein is a leader in financial technology (fintech) in Europe, known for its flexible legislation and low taxes.
- Regulation: The Financial Market Authority (FMA) regulates crypto hedge funds in Liechtenstein, ensuring fairness and transparency.
- Tax Benefits: Liechtenstein offers tax advantages, including the potential to qualify as a “fund for highly taxed persons” for favorable tax rates.
- Crypto Valley: Switzerland's Canton of Zug is often referred to as the European “crypto valley” due to its thriving crypto ecosystem.
- Regulation: Swiss Financial Market Supervisory Authority (FINMA) applies existing financial market laws to regulate crypto funds, ensuring compliance with licensing, AML/CTF, and reporting requirements.
- Taxation: Crypto funds in Switzerland are generally taxed on a capitalization basis, with taxation occurring upon asset sales. Tax rules for shares in companies also apply.
United Kingdom (UK):
- Flexible Legislation: The UK offers flexibility in choosing the form of cryptocurrency funds.
- International Recognition: UK licenses have international recognition and credibility, attracting investors.
- Taxation: Certain conditions must be met for tax exemptions on crypto fund profits. The fund must be managed and tax resident in the UK.
- Progressive Fintech Hub: Malta is known as a progressive fintech hub in Europe, with a regulatory framework established by the Virtual Financial Assets Act (VFAA 2018).
- Regulation: The Financial Services Authority (MFSA) regulates crypto funds in Malta, and recent changes have opened up opportunities for cryptocurrency transactions.
- Taxation: Tax rates and obligations vary based on fund type and activities, with general corporation tax at 35% and potential tax refund schemes.
- Flexibility: The Cayman Islands offer various fund structures, and they are a leading market for cryptocurrency funds.
- Regulation: The Financial Services Authority (CIMA) regulates crypto operations.
- Taxation: Taxation in the Cayman Islands depends on the fund structure and activities, with some structures enjoying tax exemptions.
- Regulation: Gibraltar has introduced the Distributed Ledger Technology (DLT) regulatory regime to ensure transparency and legality in cryptocurrency activities.
- Taxation: Income tax in Gibraltar is at 12.5%, with tax on dividends and interest at 0%. VAT on cryptocurrency trades is generally not applied.
- Fintech Sandbox: Lithuania offers a fintech sandbox environment with flexible rules for innovative financial platforms.
- Regulation: The Central Bank and other competent authorities regulate cryptocurrency use and have introduced policies allowing the registration of crypto funds.
- Taxation: Cryptocurrency funds in Lithuania are required to pay tax on profits received from trading cryptocurrencies.
- Mining Hub: Georgia has a significant presence in cryptocurrency mining and has a cryptocurrency-friendly legislative stance.
- Tax Benefits: Georgia offers an attractive tax system for cryptocurrency companies, including income tax exemptions for foreign investors.
- Taxation: Cryptocurrency sales in Georgia are subject to income tax at 15%, and dividend tax rates of 5%-15% apply to crypto funds receiving dividends.
Asia, East, and Latin America destinations for cryptocurrency activities
These directions offer various opportunities, and different countries in the region have their unique advantages and regulatory frameworks. Here's an overview of some key considerations when establishing a crypto fund in Asia, East, and Latin America jurisdictions in 2024:
- Regulatory Environment: Singapore is a prestigious jurisdiction with a supportive regulatory environment for the FinTech sector, including cryptocurrency funds.
- Licensing Requirement: Crypto funds in Singapore are required to obtain a Capital Markets Services (CMS) License from the Monetary Authority of Singapore (MAS). This ensures compliance with rules and requirements.
- Tax Benefits: Singapore offers tax exemptions on income from cryptocurrency transactions, part of its strategy to become a global hub for technology and blockchain innovation.
- Open Approach: Hong Kong has few legal restrictions on cryptocurrency and actively supports blockchain technologies.
- Regulation: Crypto funds in Hong Kong may need to be locally registered and licensed by the Securities and Futures Commission (SFC), depending on asset thresholds.
- Taxation: Crypto funds in Hong Kong typically pay income tax at 16.5%, with exemptions available under certain conditions. There is no VAT on services or goods, and no separate tax on capital income.
- Legal Framework: In 2022, Kyrgyzstan established a legal and regulatory framework for crypto funds and virtual assets. Virtual currency is recognized as property.
- Licensing Requirement: Crypto funds in Kyrgyzstan are required to obtain a license from the regulatory authority to conduct crypto-related activities.
- Digital Assets Law: Kazakhstan implemented the Digital Assets Law in 2023, providing a legal framework for cryptocurrency funds and digital assets.
- Tax Advantages: Kazakhstan offers tax benefits within special economic zones, including exemptions from income tax and import duties on equipment for participants in crypto funds.
- Astana International Financial Center in Kazakhstan provides a conducive environment for crypto fund creation. Investors need to obtain a crypto fund license from the AIFC that aligns with their crypto-related plans.
United Arab Emirates:
- Legal Status: Legislation in the UAE provides legal status for crypto assets, and crypto businesses must obtain a crypto license.
- Dubai's Initiatives: Dubai, in particular, has taken steps to integrate blockchain and regulate cryptocurrencies. The Digital Assets Law was passed, and a special authority (VARA) was created.
- Taxation: The UAE has a special tax regime for crypto assets. Cryptocurrency funds are subject to a 5% value-added tax (VAT), but there is no VAT on transactions within the UAE between fund members. Other taxes, such as profits or capital gains, may apply depending on the fund's legal status and activities.
- Bitcoin as Legal Tender: El Salvador made history in 2021 by adopting Bitcoin as legal tender alongside the US dollar, creating a crypto-friendly environment.
- Cost-Effective Solution: Creating a crypto fund in El Salvador is cost-effective and offers numerous opportunities given the country's cryptocurrency-friendly stance.
- Banking Services: It is possible to open a bank account for a crypto fund at a local bank in El Salvador.
Cryptocurrency funds worldwide
Comparison of popular jurisdictions for your convenience
- Liechtenstein: Fintech-friendly, flexible legislation, low taxes.
- Switzerland: Crypto Valley, strong regulation, taxation on capitalization basis.
- UK: Flexible legislation, international recognition, tax exemptions under conditions.
- Malta: Progressive fintech hub, regulated by MFSA, tax rates vary.
- Cayman Islands: Offers various fund structures, leading market for crypto funds, tax depends on structure.
- Gibraltar: DLT regulation, 12.5% income tax, no VAT on crypto trades.
- Lithuania: Fintech sandbox, crypto regulation, tax on crypto profits.
- Georgia: Cryptocurrency-friendly, income tax at 15%, tax benefits for foreign investors.
Asia, East, and Latin America:
- Singapore: Supportive regulatory environment, CMS license, tax exemptions.
- Hong Kong: Open approach, SFC registration, income tax at 16.5%.
- Kyrgyzstan: Legal framework, licensing required, strict AML rules.
- Kazakhstan: Digital Assets Law, tax advantages in special economic zones.
- UAE: Attracts investors, crypto licenses, special tax regime.
- El Salvador: Bitcoin legal tender, cost-effective, banking services.
- United States: Robust regulation, SEC registration, income, and capital gains taxes.
- Australia: Cryptocurrency-friendly, ASIC regulation, income tax at 27.5%.
YB Case offers a comprehensive support for opening a crypto fund in the USA, European and Asian countries. Our specialists can provide the following services:
- Consultations on creating a crypto fund, including recommendations on choosing a strategy, market analysis and legal aspects.
- Selecting a jurisdiction for registering a crypto fund, considering the characteristics of each country and your investment goals.
- Due diligence of business.
- Services for structuring crypto funds.
- Support in obtaining permits for working with cryptocurrencies.
- Help in selecting a bank or payment system to open an account for a crypto fund.
What is a crypto fund?
A crypto fund is similar to traditional portfolio investments such as hedge funds, but the investment is in crypto assets. The term “cryptocurrency fund” refers to a portfolio containing many digital assets.
How to create a crypto fund?
To establish a cryptocurrency fund, you will need to perform several steps:
- Select a jurisdiction and study the features of its legislative framework in the field of crypto.
- Choose a fund structure that suits your goals.
- Make an impressive list of documents.
- Apply for a license.
How can I ensure the security of cryptocurrency assets held by the fund?