While the upcoming Brexit is unlikely to have a major impact on the global digital currency markets, cryptocurrency exchanges operating in Europe will suddenly find themselves in a more complicated environment.
Coinbase, for example, is poised to feel the impact of the impending Brexit. Just over a year ago, the largest US cryptocurrency exchange announced that it had received an e-money licence from the Financial Conduct Authority (FCA), the UK’s financial regulator. The licence, which covers fiat activities, rather than cryptocurrencies, allows the company to issue e-money and provide payment services in the UK. It also extends to 23 countries within the European Union, but after the UK exits the EU, this will no longer be the case. Nevertheless, Coinbase has remained committed to the UK market.
“The UK is a huge market for us, Brexit or no Brexit,” Zeeshan Feroz, the chief executive officer of Coinbase UK, told Business Insider at the time. “We’ve got access to a type of talent pool you can’t really get anywhere else besides the UK in Europe. We certainly intend to invest significantly in the UK office and the headquarters here. The roles we’re hiring from range from engineering to compliance and everything in between.”
Still, Coinbase has made preparations to counter the potential complications stemming from Brexit. In October of last year, the company opened an office in Dublin, as part of its effort to scale up in the EU. However, the move was also part of Coinbase’s post-Brexit contingency plan.
“Ireland does offer us a home in a post-Brexit scenario,” Feroz said in October, as quoted by the Financial Times. “It could serve as our gateway in the future … we’re planning for all eventualities.”
Feroz also told the newspaper that the company had considered other options, but Dublin’s proximity to the UK and the level of talent available in the Irish capital ultimately were the deciding factors.
Will Crypto Exchanges stay in UK post Brexit?
For cryptocurrency exchanges, having to open offices in multiple regions already is a familiar reality. Coinbase itself also has opened an office in Japan as part of its plan to expand to the country and is working towards securing an operational licence from the local financial regulator. EToro, a social trading platform that facilitates trading of digital currencies, as well as a variety of other financial instruments, was originally found in Israel in 2006, but in addition to its Tel Aviv headquarters, it also has offices in London and in Limassol, Cyprus. The company is registered with both the UK’s Financial Conduct Authority (FCA) and the Cyprus Securities & Exchange Commission. The company has also secured a licence to provide services in Australia and recently announced that it was expanding to the US.
In some regions, digital currency exchanges have had to deal with a much more hostile environment than what Brexit is expected to create. Consider OKEx and Huobi, which were among China’s biggest crypto exchanges before the country, in September, 2017, decided to ban domestic exchange trading of digital coins. The ban forced the exchanges to move their headquarters overseas and halt fiat-to-crypto trading activities just to remain operational. Some 18 months later, these two exchanges – now located in Hong Kong and Singapore, respectively – remain among the largest crypto exchanges in the world and are actively expanding outside of its main markets. Earlier this year, OKEx announced that it was expanding to Malta, as it was attracted to the country by its efforts to build “a supportive regulatory and technical infrastructure to support the blockchain industry”.
Is Europe more attractive to Crypto Exchanges than UK after Brexit ?
Binance was another crypto exchange that was founded in China, but relocated because of the ban. The company, which is now the largest crypto exchange in the world by trading volume, is also looking to expand to Malta.
Just as intriguing is the company’s decision to open a crypto exchange in Jersey, a self-regulating dependency of the UK. The exchange offers fiat-to-crypto trading, allowing users to buy and sell Bitcoin and Ethereum with pounds and euros. Binance officials have indicated that the move was partly motivated by the upcoming Brexit.
“Expanding the cryptocurrency exchange markets with fiat currencies in the European region is opening new economic opportunities for Europeans as well as freedom from looming Brexit uncertainty where the pound and euro are also in concern,” Binance chief financial officer Wei Zhou commented, as quoted by Forbes. “Through Binance Jersey, we want to help bridge the crypto-fiat channel for Europe and the U.K. as part of our global expansion to support broader cryptocurrency adoption.”
Crypto Exchanges Contingency Plan post Brexit
All this doesn’t mean that crypto exchanges are unconcerned with the level of regulatory oversight under which they are operating. Both Binance and OKEx have openly admitted that they have been attracted to places like Malta and Jersey because of the blockchain and crypto-friendly frameworks existing in those jurisdictions. Binance has reportedly faced legal problems regarding its offices in Japan and Hong Kong, which has likely played a significant part in its decision to move to Europe.
But when it comes to regulation, these exchanges seem to have in mind an alternative solution: DEX.
Decentralised exchanges are seen by many as the ultimate evolution of cryptocurrency trading. Running on a blockchain, such platforms are able to facilitate peer-to-peer, crypto-to-crypto trading, but, at the same time, are not controlled by a central entity. In theory, this brings benefits such as user anonymity, better security against hacker attacks, faster transactions and, of course, higher resistance to regulatory pressure.
Binance, OKEx and Huobi are already working their own proprietary blockchains, as part of their respective plans to launch DEX platforms. Binance launched a testnet for it DEX earlier this year, while OKEx plans to make a similar move in the summer. Apart from these three majors, a number of smaller projects, such as IDEX, OasisDex, Radar Relay and 0x, already offer a taste of decentralised crypto trading. The majority of existing DEX projects are running on already established public blockchains, such as Ethereum, EOS and NEO. With big exchanges starting to jump on the bandwagon, it seems like DEX will truly be the name of the game for cryptocurrency trading.