Singapore and Switzerland race to create crypto-perfect regulatory regimes

Both countries are trying to become the blockchain industry's global home. But they’re just two jurisdictions positioning to attract head offices and startup investment.

A year ago, if you asked the average blockchain enthusiast which countries were the most coin friendly, they’d probably have said Malta or Estonia.

But life comes at you fast in crypto. Today, Singapore and Switzerland are emerging as the most accommodating markets for new digital asset investment — while the previous front runners enact new rules that make setting up in their countries harder.

There’s a race on, and several countries are positioning themselves as friendly territory, where crypto companies can open offices and establish legal entities. Whether it’s legalizing exchanges, letting their citizens engage in mining, greenlighting DeFi banking licenses, or simply making it easier to buy and sell coins, financial regulators in these countries are keeping an open mind.

For governments looking to stoke foreign investment inflows, convincing crypto startups to call their countries home has lots of upside. They can gain a foothold in the booming DeFi market or create new blockchain-focused techno hubs that could one day compete for the title of ‘Silicon Valley 2.0’.

Two countries are currently in the lead.

Switzerland

Switzerland’s well-established financial sector, stable political environment, and liberal stance when it comes to foreign companies setting up shop in the country make it a natural destination for tech startups. Add in some of the lowest tax rates in Europe, and it’s easy to understand how the Alpine nation won the title of ‘third-best European country to start a company’ (behind Germany and the UK).

Several high profile crypto companies have a base in Switzerland, including

Tezos, EOS, Filecoin, Polkadot, Nexo, and Dfinity — not to mention Ethereum. They’re all based in the low-tax, low-regulation Canton of Zug. There are more than 900 blockchain and cryptocurrency companies operating in Switzerland, employing close to 4,800 people.

So many of them are concentrated in Zug that’s it’s been dubbed “Crypto Valley” and emerged as a stronghold for crypto investment. Its business- and innovation-friendly policies have made it one of Europe’s go-to jurisdictions to register companies for tax purposes (27,000 and counting). It’s also a traditional technology hub with a concentration of med-tech companies and electronic component manufacturers.

During the 2017–18 ICO craze, Swiss companies raised more than USD 540 million, nipping at the heels of the US, which raised USD 570 million.

Compared to other countries, Switzerland was also one of the earliest to clarify its legal stance on cryptocurrencies. While American regulators mulled the broader implications of Bitcoin’s rise, the Swiss Bundesrat enacted several laws designed to address crypto companies’ operational needs and risks.

At the height of the ICO mania, Switzerland’s FINMA financial regulator stood apart from other countries and kept cryptocurrencies off its list of securities, allowing Ethereum, for example, to avoid the kind of legal scrutiny applied to other projects who raised funds through ICOs.

FINMA has exempted crypto from regulation in other important ways too. Under regulatory rules, it’s not legal tender or a foreign currency, neither is it considered a ‘financial supply’ for VAT purposes. That leaves crypto companies more space to experiment and reduces the barriers to conducting business. Earlier in 2021, the Swiss government took even further steps.

In February, Bern unanimously approved the Distributed Electronic Registers Act. The law allows crypto companies to tokenize bonds, shares, and other traditional financial instruments. That move could open the door to more DeFi startups and even herald the creation of new digital equities or other tradable blockchain-based assets.

Singapore

Like Switzerland, Singapore’s emergence as ASEAN’s crypto hub has come off the back of its sterling reputation in the world of traditional finance.

While Hong Kong may have been Asia’s dominant financial centre historically, Beijing’s increasingly aggressive stance toward the former British colony has helped propel Singapore into the spotlight.

The city-state has been a direct beneficiary of the tensions brewing across the South China Sea, but it’s been growing in importance for years as a centre for Asian finance, working tirelessly to make its gleaming modern office towers the place to do business in the region. It’s working. More than 40 per cent of fintech companies in Southeast Asia are based there.

The country ranks second in the world for doing business according to the World Bank, ranked just behind New Zealand. Crypto companies have taken notice. CoinGecko, KuCoin, Kyber Network, Aelf, Zilliqa, and Enjin are all based there, along with 230 other blockchain companies operating in the country. There have been 100+ new crypto company registrations in the last 14 months alone.

Singapore applies its finance regulation more broadly to crypto, providing access to a dispute resolution mechanism and a legal framework tweaked to make it easier for crypto businesses to operate.

Singapore’s Payment Services Act, which came into force last year, establishes a framework for regulating digital payment token services (and traditional payment systems) in the country, enabling more blockchain businesses to operate in the country. The law’s objective is to provide traders, consumers, and companies with the confidence to operate in the sector.

The city-state has also been supportive of blockchain projects that expand the development of cryptocurrency and digital payments. A project called ‘Ubin’ led by Singapore’s Monetary Authority is exploring the feasibility of inter-bank transactions using blockchain technology.

Finally, Singapore is one of just a few countries that doesn’t apply capital gains tax to cryptocurrency income. Tharman Shanmugaratnam, the country’s Deputy Prime Minister, summed up the city-state’s attitude in an interview with Reuters:

‘We are actively encouraging experiments in the blockchain space that embrace digital currencies. We hope that the innovations that emerge will turn out to be socially and economically useful. But we will monitor and stay alert to the rise of any new risks.’