UK’s Channel Islands Tax Haven Luring Investors into Crypto

While the financial world is hesitant to trade Bitcoin because of the recent market crash, the Channel Islands - several small British Overseas Territories - are quietly offering tax incentives to investors to move their money into cryptocurrencies.

Due to their favourable tax laws, Jersey and Guernsey – the two main islands of the UK's Channel Islands – are attracting cryptocurrency, blockchain, and other fintech companies into their jurisdictions.

Crypto experts based in Jersey and Guernsey recently talked to Business Insider media about how these islands set up efforts to attract crypto and blockchain investors.

Edmund Hatton, a fintech lead at Digital Jersey, told Insider that these islands have not instituted capital gains or inheritance tax in their governance plan, making them attractive locations for investment firms, including crypto firms.

Hatton said that even before cryptocurrency entered the mainstream, Jersey and Guernsey had begun competing for the booming asset class.

Jersey has attracted crypto firms such as CoinShares, which manages assets worth about $3 billion. The Swiss-digital asset investment firm used Jersey to establish its crypto-backed Physical Bitcoin exchange-traded product in January 2021.

Barney Lewis, the CEO of ZEDRA, an investment firm based in Guernsey, told Insider that he made a recent trip to Miami – the major crypto hubs in the US – as part of efforts to lure American crypto investors to the island and away from rival tax havens like the Cayman Islands.

"We're competing directly against Cayman, and we're seeing the migration of US funds out of there. Brazilian and South American investors have fallen out of love with Cayman and are moving the capital to Guernsey," Lewis said.

Efforts by the Channel Islands to lure crypto investors have coincided with the broad plunge of crypto prices over the previous nine months.

The current crypto winter could benefit the landscape by testing key infrastructure, consolidating major companies, and boosting greater efficiency.

Jonathan Van Neste, a partner at Jersey-based Oben Regulatory, told Insider: "In a crypto winter, we could see a consolidation of crypto projects. That would lead to a much more diversified investment opportunity in the crypto, blockchain, and DLT space."

The experts said the maturation of the digit asset landscape could increase investors' appetite for low-tax jurisdictions like Jersey and Guernsey.

The experts are optimistic that the Channel Islands' proactive approach to luring investors will place Jersey and Guernsey in an ideal position to profit when cryptocurrencies make them come back.

Lewis said although "crypto and digital assets adoption has been slow in the fund's space, we have to hope we're well-placed for the next cycle."

Investing in Cryptocurrencies

People in Jersey and Guernsey have shown the same interest as their counterparts in the UK as residents are increasingly buying into cryptocurrencies.

Reports show that one in five citizens in Jersey and Guernsey own cryptocurrency. Younger people in these islands already used digital assets such as Bitcoin to transact online.

The next generation in the wider UK has already adopted crypto assets and is already using them, despite leading regulators urging caution.

Inflation has been a major driver for people adopting such virtual assets across international countries that have seen currency devaluation.

In January this year, Guernsey launched its first cryptocurrency fund, which is now available to institutional investors.