Binance To Setup Crypto-Fiat Exchange In Malta

  • Binance close to closing a deal to open a fiat to crypto exchange in Malta
  • Binance has been struggling to secure a license in Japan 
  • Malta looking to open its doors to blockchain business

Yesterday, news broke from Nikkei that the Japanese financial regulatory body – the FSA (Financial Services Agency) – was planning on warning Binance that they must register as an exchange or face legal action. 

Binance appears to have been planning for this eventuality and is looking to setup a crypto-fiat exchange in Malta due to its favourable legal landscape.

CEO Zhao Changpeng recently told Bloomberg it is looking to build a “fiat to crypto exchange” in Malta. According to the CEO, the company is close to signing a deal with the local banks to secure deposits and withdrawals. However, it is uncertain when this exchange is looking to launch.

The choice of Malta may seem strange considering the exchange is predominantly based in Asia; Zhao Changpeng explained the decision to Bloomberg saying that:

“Malta is very progressive when it comes to crypto and fintech.”

Zhao Changpeng Binance CEO

Malta Opens Doors To Blockchain

Jurisdictions such as the U.S. and China have been clamping down on crypto-asset exchanges either shutting them down completely as China have done, or making operations exceedingly difficult as is the case in the U.S.. Listing any altcoins which are deemed a security in the U.S. requires registering with the SEC and CFTC; this compliance is hard to get and expensive. 

Malta is looking to become a hotspot for crypto-asset innovation by relaxing regulations. The small nation may have secured a deal with one of the largest companies in crypto, a move that will surely bring jobs and tax to Malta.

Joseph Muscat, Malta’s prime minister, has said they aim to be “global trailblazers in the regulation of blockchain-based businesses” and recently welcomed Binance to Malta:

Binance Dominance

If the license in Malta is secured, the company will have two operational exchanges: the pre-existing exchange which is purely crypto to crypto with little to no KYC/AML compliance and the fiat to crypto exchange in Malta which will likely require greater KYC and AML procedures in order to secure and maintain its banking partners - they will not want to expose themselves to the risks of money laundering or terrorist financing claims.

To further their dominance in all aspects of crypto-asset trading, they are apparently in development of a “fully decentralised exchange” that will run on a “tailored blockchain” called Binance Chain.

The DEX (decentralised exchange) will work alongside their existing business model which, if successful, would mean Binance will operate three tiers of crypto exchanges. This would surely lock in their place as the world's largest cryptocurrency exchange.

How Bakkt Can Bring the Crypto Space an Institutional Investor Influx

Cryptocurrency enthusiasts have for years been waiting for institutional investors to enter the space. While the introduction of bitcoin futures contracts on regulated exchanges in late 2017 didn’t gain a lot of traction, but Bakkt may.

Bakkt is a long-awaited bitcoin futures exchange and on-boarding platform from the Intercontinental Exchange (ICE) - the parent company of the New York Stock Exchange – and it’s set to launch this year. Bakkt itself has remained tight-lipped over the precise launch date after delaying its launch last year, with ICE CEO Jeff Sprecher in February simply saying “later this year.”

It’s possible that this quarter may see the launch or at least more news about when the exchange is finally coming. At the end of March, Bakkt CEO Kelly Loeffler explained:

While we’re not yet able to provide a launch date, we’re making solid progress in bringing the first physical delivery price discovery contracts for bitcoin to the U.S.

Bakkt’s launch could be a major milestone for the cryptoasset industry. A venture backed by Microsoft and Starbucks, its institutional pedigree alone will switch many cautious investors on. Specifically, the firm is set to help consumers pay for goods and services with cryptocurrencies, with Starbucks being the flagship retailer in its arsenal.

Bakkt’s Bitcoin futures contracts will be the first physically-settled derivatives on a regulated trading platform. This means investors will receive the contract’s underlying asset, bitcoin, when it expires.

Currently the Chicago Mercantile Exchange (CME) offers cash-settled bitcoin futures contracts, meaning investors get the equivalent of BTC’s value in fiat when the contracts expire. This is seen by some as a major development in the cryptocurrency space, as it shows traditional finance is willing to interact with the nascent cryptoasset industry.

It’s worth noting that earlier this year the ICE’s CEO called Bakkt a “bit of a moonshot bet,”  as it was organized in a way “very different than the way ICE typically does business.” The firm has its own offices and management team, and could undergo more rounds of financing in the future.

Bakkt And a Potential Bitcoin ETF

What’s significant about Bakkt’s launch beyond this, is that it may bolster the chances of a Bitcoin Exchange-Traded fund (ETF) being approved. Such a product would make it easier for institutional investors to gain exposure to cryptocurrencies.

In August, the US Securities and Exchange Commission (SEC) rejected nine other ETF applications, in particular highlighting how those applying hadn’t provided evidence that “bitcoin futures markets are of significant size’” for an ETF to be launched.

Once Bakkt is launched its trading volumes may very well help quell the SEC’s concerns over the bitcoin futures markets’ small size as institutions and other investors may feel comfortable entering it. Larger futures contracts trading volume, increased liquidity and a well-established company involved may prove enough to convince the SEC that the time is right for a Bitcoin ETF.

Bakkt therefore represents a very significant milestone for a maturing cryptoasset industry and may well herald the “institutional influx” that many have been anticipating since 2017. Despite the markets remaining relatively flat throughout 2019 these looming decisions in the U.S. have the power to move the entire industry forward, for better or worse.