KEEPING A STEADY EYE TO WIN THE FUTURE: CRYPTOCURRENCY, TOKENS AND DIGITAL ASSETS IN THE BRITISH VIRGIN ISLANDS By MICHAEL KILLOURHY and DAVID MATHEWS
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fferings of cryptocurrencies, digital tokens and other blockchain based digital assets have raised billions of dollars in recent years. The increasing utility of cryptocurrencies and digital tokens and the creation of digital asset exchanges has also facilitated a valuable secondary market. While the recent meteoric rise in the value of bitcoin has attracted headlines, the value and utility of other digital assets has also risen considerably (resulting in aggregate market value of over US$1 trillion as of January 2021 according to some estimates). This has captured the interest of investors and managers alike and seen the rise of cryptocurrency and digital asset focussed investment funds. Leading international financial centres (IFCs), such as the British Virgin Islands (BVI), have all sought to become part of the digital asset phenomenon. However, while a number of IFCs have worked hard to position themselves as fintech and digital asset hubs, the BVI has become the jurisdiction of choice for token generation. The BVI’s experience in token generation has also helped the jurisdiction attract other digital asset-based activities, including token exchanges and investment funds focussed on cryptocurrency and other digital assets.
ICOs, ITOs AND TOKEN TYPES Newly minted cryptocurrencies or tokens are first issued through Initial Coin Offerings (ICOs) or Initial Token Offerings (ITOs). An ICO or ITO is, in essence, just another means of accessing third-party capital. Rather than receiving a security whose return or value is derived from the performance of a business or the value of another asset, as in a traditional securities offering, ICO and ITO investors exchange cash or other cryptocurrency for a new digital asset formed and operating on a blockchain network. In most cases this asset takes the form of a credit or token for use in making purchases on, or to gain access to, the digital business platform that the offering proceeds are being used to develop. The internal economy of the platform on which a token is to be used is referred to as its “ecosystem.” The type of digital token described above is referred to as a “utility token” – its value being based on its utilisation within the ecosystem where it functions. Utility tokens can also have an intrinsic investment potential. For example, rather than using tokens within their ecosystem, investors may continue to hold a token in the hope that the success of the ecosystem or the adoption of the token into other ecosystems will result in greater demand, and thus drive an increase in the token’s value relative to other token types or currencies. As the value of a token is determined by the demand for the token itself rather than being more directly linked to some underlying asset or activity, true utility tokens are, generally speaking, not regarded as “investments” or “securities” by a number of jurisdictions and are therefore not subject to laws there regulating those types of assets. As a result, ICOs and ITOs can offer an efficient and cost-effective means of accessing capital for start-up or early stage enterprises or technology entrepreneurs which might not otherwise have access to capital markets.
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