James Drury and Cassandra Ronaldson
In 2018, we published an article, “Rise of the Crypto Market” and predicted that in the coming years we would see “an increased number of Crypto fund launches, combined with volatile market conditions and expected life cycle of certain Crypto funds, we may see a large quantity of Crypto fund closure/liquidations in the not-too-distant future”.
So what has happened since 2018?
Following the soaring heights achieved in late 2017/early 2018 when Bitcoin’s (BTC) price had climbed to nearly US$20,000, the period between 2018 to January 2019 was characterised by a market correction, which saw BTC decline to US$3,500. Following ‘the Crypto Winter’ of 2018, the digital assets industry has seen a resurgence, with growth led by the adoption of digital assets by large institutional investors and BTC and other Alt Coins reaching new highs and nearing the values of 2017.
According to data from CoinMarketCap, in December 2020, there are more than 7,800 different types of crypto-currencies that exist in the world today with a total market cap of US$835.5 billion.
Some examples of the penetration and integration of digital assets into traditional global banking systems are:
Regulation and corporate governance
Where the banks go, regulators will follow
As interest in the market grows in respect of digital assets as a new alternative investment class, regulators around the World are dedicating resources to create a regulatory environment which fosters and protects investment in this sector.
In the British Virgin Islands (BVI) and Cayman Islands, regulators, alongside the private sector and the policy makers, have been on the forefront of such regulation.
The Cayman Islands have recently introduced a number of pieces of legislation to assist with the regulation of Virtual Asset Services Providers (VASPs). Under this legislation, VASPs, that is parties who are involved in providing services that use or rely on virtual assets, will be supervised persons / entities.
Likewise, the BVI Financial Services Commission (FSC) recently issued the Guidance on the Regulation of Virtual Assets in the BVI, relating to the regulation of virtual assets generally, which would include crypto-currencies and utility tokens. The FSC has taken a constructive attitude towards virtual assets and, generally, is not seeking to impose regulation on virtual assets that would not have been subject to under the existing, "mainstream" financial services regulatory framework in the BVI.
Cryptocurrencies were initially viewed by traditional financial institutions as radical and risky but as knowledge and understanding of cryptocurrencies has grown, their use and adoption by mainstream institutions, even sovereign government, has similarly increased.
On August 31, 2020, the Financial Services (Fintech Regulatory Sandbox) Regulations 2020 came into force in the BVI. Under the Sandbox Regulations, BVI companies and other undertakings will be able to test FinTech and relevant financial services products on a trial basis within a “light touch” regulatory environment.
Read more here.
BVI and the Cayman Islands’ markets: A snapshot
The BVI and the Cayman Islands are both considered to be major global players in respect of digital asset / fintech related businesses, Initial coin offering (ICOs), and cryptocurrency funds. Statistics show that the BVI is the second biggest cryptocurrency market in the world in terms of trading value, second only to the US.
ICOs
ICOs, somewhat akin to an Initial Public Offering (IPO), are smart contracts which use blockchain technology to raise external finance. unlike an IPO, an investor in an ICO will not receive shares in the company but instead tokens. By the end of 2019, 5,600 ICOs worldwide had raised more than US$27 billion, with the single largest ICO recorded to date structured through the Cayman Islands.
As at February 2020, the BVI and Cayman Islands’ rankings in respect of the ICO market is set out in the below table:
| Country | No. of ICOs | Amount Raised | Global rankings in respect of the amounts raised |
| BVI | 71 | $2.4bn | 3rd |
| Cayman Islands | 119 | $1.4bn | 6th |
Crypto Hedge Funds
It is estimated that globally total assets under management of crypto hedge funds doubled from US$1 billion to US$2 billion in 2019, with the experts noting the correlation between the performance of crypto hedge funds as compared to the price of BTC over time.
Global value of Initial Coin Offerings: $27bn
Global value of Initial Coin Offerings: $2bn
Prominent international insolvencies since 2018
Equally with the rise of cryptocurrencies, since 2018, we have seen an increase in the number of digital asset related insolvencies of token issuers, funds, service providers (such as exchanges). We expect that insolvencies will only continue to increase as the industry becomes increasingly mature and further regulated.
Where Interpath can help
With the blockchain ecosystem being an established notion, the inherent risks underlying the participants and therefore the possible events preceding an insolvency or restructuring is not new. Interpath has expertise spanning three decades and is well equipped to deal with appointments in respect of the participants of the blockchain ecosystem.
Why Interpath?
Our knowledge of crypto currencies, independence, and our experience conducting complex forensic investigation and cross- border litigation will all be critical in any crypto-related collapse.
Interpath has invested time and resources in understanding the lessons learnt from the bankruptcy of Mt. Gox and the other prominent insolvency collapses in other jurisdictions to ensure an efficient management of the next crypto restructuring in our jurisdictions.
Our in-house language skills are also unrivalled with fluent speakers in English, Cantonese, Mandarian, Hindi, Bahasa Indonesian, Russian and Ukrainian.
Interpath is confident that its preparation is unrivalled by any other in BVI and Cayman Islands. With Interpath, you will get a team that is incredibly innovative, independent, flexible and quick to act.
Final comments
As we enter into the second decade since the release of the world’s first cryptocurrency, virtual assets and distributed ledgers are becoming common place, and will therefore play some role in investors’ lives.
Central Banks and publicly listed corporations are placing their treasury reserves into cryptocurrency (https://bitcointreasuries.org/) and large payment operators like PayPal and Square Inc. are adopting crypto into their platforms which gives increased access to crypto to many more investors. Consequently, insolvencies and restructurings relating to these types of assets will form part of the restructuring and insolvencies of the future.
Our prediction is that crypto will continue to increase over the coming years to unprecedented levels. The increase in late 2020 appears different to the 2017 rise with large investments being made by major players in this space in line with the increasing consumer demand. Also the pandemic has been a factor, with many investors looking to move from cash to crypto.
Business owners and advisors who are seeking urgent advice in relation to the restructuring or liquidation of BVI / Cayman Island entities with digital asset exposure should contact Interpath for prompt and proactive advice. We welcome any discussion on this topic as we look to the future.
