Despite news of big cryptocurrency trading platforms casting their vote of confidence in Cyprus, local stakeholders feel differently as they argue the island is unfriendly to crypto businesses.
Cyprus’ ambition of becoming a fintech hub has been boosted by the decision of some cryptocurrency firms, such as Binance, the world’s largest cryptocurrency trading platform, to establish a presence on the island.
However, entrepreneurs are not impressed by the stance towards digital currencies.
In comments to the Financial Mirror, the University of Nicosia CEO and Digital Currency professor Antonis Polemitis said that Cyprus needs to take the matter more seriously if it wants to attract such businesses and blockchain technologies.
“Cyprus authorities need to step in and work on developing a regulatory framework for companies active with cryptocurrencies”.
He said banks have to review their policy towards crypto, as Cypriot banking institutions do not allow companies or individuals dealing with crypto to open digital currency accounts.
“It is next to impossible to encourage crypto businesses to come to Cyprus, as the local banks actively block any crypto-related transactions.
“These companies can’t even open an account here,” said Polemitis.
He explained that companies that do decide to move to Cyprus relocate their office here but set up offshore bank accounts.
Deniz Omer, a Cypriot financial analyst who co-founded the crypto-data platform Alphaday, told the Financial Mirror of his tribulations in setting up a company in Cyprus.
“Entering the fascinating world of crypto-currencies, with officials sounding encouraging, we did not expect to find ourselves in the position of not being able to conduct business on the island,” said Omer.
He explained that Cypriot banks are far from friendly towards cryptocurrencies as they will not accept opening accounts for companies dealing with them.
“This essentially means that we cannot do business here.
“As a company dealing in cryptocurrencies, we cannot bring our earnings here, we cannot save them in Cypriot banks, and we cannot reinvest in Cyprus.”
Omer argued that this limitation means companies dealing in cryptocurrencies wanting to set up shop in Cyprus would have to find a workaround, usually opening up accounts abroad.
“And again, this has its limitations, as we can still not make transfers to a Cypriot account.”
A lack of a regulatory framework means that even if Cypriot crypto entrepreneurs were to convert their crypto assets into currencies accepted by the Cypriot banks, they would still have the problem of how to declare any earnings.
“Current legislation does not clarify how our profits from crypto are to be taxed. As capital gains? As profit from currency transactions?”
As Omer explained, many register their earnings as capital gains with tax authorities resulting in 20% cuts, which is “not exactly an incentive for setting up crypto-currency companies in Cyprus”.
In comments to the Financial Mirror, bank economist Ioannis Tirkides gave his personal take on why banks are shying away from crypto.
“Banks operate under strict regulations, while there is no regulatory framework for cryptocurrencies at the moment.
“So it is almost by default that banks cannot be particularly friendly towards cryptocurrencies,” said Tirkides.
He argued that until the authorities regulate cryptocurrencies and transactions, banks cannot take on the risk of accepting them.
In his view, cryptocurrencies are a risky asset, which inexperienced investors should steer away from.
“Profits do not come out of thin air.
“For someone to make a profit means that someone else somewhere is losing out.”
The official stance on crypto should not be confused with their view on blockchain technologies, “which are here to stay”.
“However, I cannot say the same for cryptocurrencies.
“I do think that we are not far from seeing the introduction of some form of regulatory framework, but in my view, cryptocurrencies will not be around in the way they are today in the future.”
Tirkides argued that digital currencies are not a store for value. Instead, he perceives cryptocurrencies as the next big financial bubble, for which tail signs are already visible.
In a communication with the Financial Mirror, the Cyprus Securities and Exchange Commission (CySEC) said it is working on improving the regulatory framework for crypto providers while warning investors of the risks involved.
CySEC is designated, under the Anti-Money Laundering Law, as the competent authority to supervise Crypto-Asset Service Providers (CASPs).
Chair George Theocharides said the authority is participating in a joint campaign of the European Supervisory Authorities of the financial sector.
“It involves a series of warnings to consumers about the risks of cryptocurrencies while just recently completing a campaign with the ultimate goal of informing and protecting investors of the risks of cryptocurrencies.
“It is important for investors to be aware that at this stage they have no recourse or protection, as crypto-assets and related products and services do not fall within the existing scope of protection under the current EU financial services rules.”
CySEC recently launched a tender for Crypto-Asset Markets Data and Blockchain Analysis Platform Services as applications by Crypto-assets service providers rise.
According to the tender documents, the €120,000 two-year contract grants CySEC access to real-time data provided by blockchain data platforms that will assist the Commission in understanding crypto-assets risks.
It must check transactions exposed to risky activities such as sanctions, child abuse material, terrorist financing, darknet markets, fraud, high-risk exchanges, ransomware, scams, and stolen funds.
CySEC has received 27 applications from CAPS to acquire a license, of which it has approved five.
It has also approved another five firms licensed by other European Competent Authorities, including Revolut and eToro.