Binance Moves To Malta In Hopes Of Collaborating With Regulators
By: Niklas Göke
Tags: Bitcoin, Economics, Cryptocurrency, Blockchain, Finance

Disclaimer: This is not financial advice. I am not a financial advisor. What follows is my personal, subjective, biased opinion.

The News

Earlier today, Binance CEO Zhao ‘CZ’ Changpeng shared in an interview with Bloomberg that the company plans to open an office in Malta. The country wants to position itself as a leader in digital asset legislation and is thus progressing fast when it comes to regulating cryptocurrencies.

Since Binance hopes to add fiat-to-cryptocurrency trading pairs soon, the move rests in part upon negotiations with Maltese banks, which are required as partners to open up fiat deposits and withdrawals.

The Facts

Binance is less than a year old. Their ICO raised less than $15 million at the time (disclosure, I own some BNB to reduce fees when using the platform). Today, the company is valued at close to $1 billion. Originally founded in China, the company has moved several times, both its servers and office locations.

A week before the China ban back in September, they moved their servers to Korea and opened offices in Hong Kong. In October, they opened another office in Tokyo, Japan, and entered into talks with regulators about obtaining a trading license. Meanwhile, they established server redundancies in order to not falter under any single jurisdiction. From an interview with CZ in October:

“In response to China’s decisions, we are moving our IP’s from Hong Kong to an offshore location. Now we have our IPs registered in BVI (British Virgin Islands) and other locations. So we are registered in multiple locations and we have people in multiple locations. That way we will never be affected by one regulatory body.”

Meanwhile, CZ’s LinkedIn lists London, Tokyo, Hong Kong and Singapore as Binance locations. However, as per today’s news, the Japan office seems to be shut down or in the process thereof:

“The company had an office in Japan and was trying to get a license to operate, but decided to remove its staff to avoid a clash with local regulators, Zhao said. Japan’s Financial Services Agency issued a warning to the venue on Friday for operating without approval.”

This warning was leaked through Nikkei Asia, but later confirmed by CZ via Twitter:

Prompted for an update about talks with Hong Kong regulators, CZ reported the outcome was uncertain:

“Zhao said he was also continuing discussions with authorities in Hong Kong, but that the outcome of those talks was uncertain. Binance was among seven crypto exchanges to receive a warning letter in recent months from the Securities and Futures Commission telling firms not to trade digital assets defined as securities under Hong Kong law, a person familiar with the letter said.”

Meanwhile, Malta has a history of being forward-thinking when it comes to financial regulations. From Wikipedia:

“Malta has a financial regulator, the Malta Financial Services Authority (MFSA), with a strong business development mindset, and the country has been successful in attracting gaming businesses, aircraft and ship registration, credit-card issuing banking licenses and also fund administration. Service providers to these industries, including fiduciary and trustee business, are a core part of the growth strategy of the island. Malta has made strong headway in implementing EU Financial Services Directives including UCITs IV and soon AIFMD.”

They’ve held several public discussions about regulating cryptocurrencies since October 2017. In February, they put forward a proposal for the Malta Digital Innovation Authority, which is to give legal certainty in the realm of blockchain technology and virtual currencies. After three weeks of public feedback, they’re now in the process of establishing the authority:

“Step one deals with setting up the authority, step two deals with launching a Bill that will set out the regime for the registration of Technology Service Providers and the certification of Technology Arrangements. Lastly, step three will launch a Bill that will set out the framework for Initial Coin Offerings (ICOs) and the regulatory regime on to the provision of certain services in relation to virtual currencies.”

Quoting from the Bloomberg article, it seems CZ was invited to look at the bill mentioned in step two:

“Zhao said he had recently been invited by the Maltese government to review an upcoming bill that was favorable to crypto businesses.”

The Commentary

From my outside perspective, Binance seems to pursue only 1–2 major milestones at any given time. Once they lock in said milestone(s), they put in the infrastructure to maintain them, then move on to new targets.

At first, it was to build a crypto-to-crypto exchange with a simple user interface that even beginners can understand quickly. Then, it was to provide those users with liquidity by adding new quality projects regularly and engaging the community in their monthly coin voting. Next came scaling the platform with maximum security, which they achieved through regular infrastructure updates, pausing registrations, and communicating transparently in the process.

Now, two big goals lie ahead:

Enabling fiat-to-crypto deposits and withdrawals, which could exponentially multiply Binance’s liquidity and open their platform to new groups of target investors, like newcomers entering space, who want to get started with fiat purchases, but buy a wider variety of coins than for example Coinbase offers. Building a decentralized exchange, which could help take on more growth, provide a safer alternative to their centralized platform, and help onboard more new groups of investors still, like hardcore nerds, who avoid centralized exchanges altogether.

The Malta move might look one in a cat-and-mouse game Binance has been playing with regulators, but the company has been trying to work with regulators from the start. It just so happens that none of the talks with Asian countries — China, Japan, Hong Kong — have born fruit so far.

However, if anywhere, speed matters in crypto. For Binance to achieve its fiat-to-crypto exchangeability goal, it only makes sense for them to go where regulators are willing to cooperate. Quote CZ:

“We are very confident we can announce a banking partnership there soon.”

The country’s prime minister also welcomed the company via Twitter:

If the country continues to push forward and banks set up partnerships with the company, we could see fiat pairings within a few months, another important step towards mass adoption and availability of cryptocurrencies.

Keep it crypto,

Nik