Cyprus’s Challenge in Introducing Crypto Regulations
Kyriacos Kokkinos, the Deputy Minister for Research, Innovation, and Digital Policy, spoke on the delicate issues surrounding cryptocurrency and digital assets at a local fintech event. The event focused on digital assets, entrepreneurship, and financial technology. Kokkinos highlighted that many EU countries are envious of Cyprus’s innovation progress, as reflected in the European Innovation Scoreboard, where the country ranked second in terms of progress last year.
He emphasized that while Cyprus is eager to incorporate digital assets and cryptocurrencies into its economy, caution must be exercised to respect existing regulations and the lack of any formal rules. Kokkinos pointed to Malta as an example, where its regulatory framework attracted numerous cryptocurrency businesses and investors, though it also led to increased scrutiny of certain companies and financial institutions. He cautioned that Cyprus must be mindful of EU regulations, as it is a member state. The country faces a dilemma: whether to wait for the European Central Bank (ECB) to finalize its regulatory framework or to establish its own. Waiting for the ECB, however, risks the possibility of overregulation.
The Deputy Minister then announced that Cyprus’s government plans to move forward independently, while still respecting EU rules. The country has already drafted an attractive crypto assets bill, which has been published for review by interested parties. Additionally, the government has enlisted a firm from New York to assist with implementing the regulations.
Potential Obstacles in Implementing the Crypto Regulation Draft
Kokkinos reiterated that some challenges still remain before the regulatory framework can be fully implemented. One of the major hurdles is the disagreement between the government and the Central Bank of Cyprus (CBC). This issue arises because the CBC is subject to oversight by the European Central Bank. As is typical with most central banks, they tend to take a more conservative approach. Kokkinos stated that the government continues to challenge the CBC’s views on various points of debate.
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Could Cyprus Emerge as the Next Crypto Hub?
Kokkinos made these remarks during a period when European nations are under pressure to introduce clear regulatory frameworks for cryptocurrencies. The rising institutional adoption of cryptocurrencies has increased the need for a structured framework, as countries look to capitalize on the growing investments in the sector. In response, Portugal, previously known as the crypto haven of Europe, announced plans to introduce cryptocurrency taxes. This move effectively removes Portugal’s crypto haven status, as the country seeks to benefit from these investments.
This shift has opened up an opportunity for Cyprus to claim the title of the next crypto haven. However, many stakeholders in the crypto industry disagree with this possibility. Currently, there is no clear guidance in Cyprus’s Income Tax Law or from the Cyprus Tax Department on how to treat cryptocurrency. As it stands, Cyprus subjects profits from digital asset trading to a corporate tax rate of 12.5%, which disqualifies the country from being considered a true crypto haven in Europe.
Does Crypto Price Volatility Impact Cyprus’s Crypto Sector?
The recent volatility in cryptocurrency prices does not seem to be a significant concern for the region. Bitcoin’s price has experienced several sell-offs this month, with the price dropping by more than 30% in early May, marking its biggest slump of the year. Despite these fluctuations, local investors in Cyprus appear unfazed by the recent downturn. Ulrik Lykke, CEO of the Cyprus-based brokerage firm Marlin & Spike, downplayed the price drop, stating that Bitcoin is simply experiencing a temporary slump and still retains its fundamental attributes.
At this stage, Cyprus may implement its crypto regulations before the European Union does. CryptoChipy will continue to monitor developments in the European cryptocurrency market.
