Crypto. Blockchain. Bitcoin.
Over the last few years, these terms have fluctuated across media and businesses. For many on the outside looking in, they carry a certain air of mystery. But, what exactly is cryptocurrency?
Cryptocurrency is a decentralised digital asset that uses cryptography, a method of protecting information and communications through codes to secure and verify assets. You might be more familiar with Bitcoin, the world’s first type of cryptocurrency introduced in 2008 during the global financial crisis.
For some time now, the idea of cryptocurrency has polarised experts. Many believe it to be nothing more than a fad while others described it as “revolutionary”. However, one thing that is inevitable as we continue towards a more digitised world is that the discussion around cryptocurrency will not be dying anytime soon.
Fast forward to 2021, the market value of Bitcoin reached a whopping $1 trillion as its price recently rose to a historic $50,000. This marks a 470 percent increase in the last year, much of which is due to the uncertainty of the pandemic and the likes of tech giants like Elon Musk investing $1.5bn, triggering a leap in value. The industry as a whole has witnessed a boom, with Bitcoin now one of the thousands of cryptocurrencies available, guaranteeing that crypto and the technology of blockchain is here to stay.
Nonetheless, with great power comes great risks. While cryptocurrency may be the way of the future, as everything from luxury brands and governments begin to use virtual currency, it still comes with justifiable concerns. It is no secret that the industry is highly volatile and could easily be susceptible to market manipulation, and due to the lack of regulation, there has been a surge in crypto fraud and scams.
On the flip side, cryptocurrencies like Bitcoin offer a level of anonymity using code that is almost impossible to break. Additionally, users do not have to worry about banking or any other additional transaction fees, making the process of banking faster and easier. Many have also begun investing in crypto as a means of diversifying their wealth portfolio and managing risk.
Despite the back and forth, cryptocurrency has already become more normalised in our lives, and its growth reaches far and wide. Paypal announced last year that it would enable its users to buy and sell Bitcoin on its platform. Simultaneously, luxury brands like Franck Muller began offering limited products only available for purchase through cryptocurrency. As of January 1st, 2021, nearly 14,000 Bitcoin ATMs exist across the globe.
How does this fit into Citizenship by Investment?
One of the industries to introduce virtual currencies is the Citizenship by Investment. First introduced in the Caribbean nation of the Federation of St Kitts and Nevis, the initiative attracts wealthy foreign individuals to invest in the country in exchange for second citizenship. This citizenship usually comes with additional benefits, including increased travel freedom, the right to live, work and study in the nation and the ability to pass citizenship down for generations to come.
Over a dozen such programmes are currently operating across the world in Europe, Asia, and the Middle East. While each programme is subject to different rules and processes, some nations have begun discussing the advantages of permitting applicants to pay with crypto. The citizenship by investment nation of Vanuatu, for example, was rumoured to have begun accepting crypto payments. However, the Vanuatu Citizenship Commission has now clearly stated that it “will not accept any payments […] by Bitcoin or Cryptocurrency” and that the only currency it will accept is the US dollar.
Christian Nesheim, the editor-in-chief of Investment Migration Insider – a publication that extensively covers the industry – believes that cryptocurrencies will eventually become commonplace in the CBI landscape.
“It will not happen overnight, simply because governments are unaccustomed to handling crypto-transactions and unsure of how to keep crypto-funds in custody. It’s not like they can simply open a Coinbase-account and start receiving money,” Nesheim told CS Global Partners. “We are talking about a sovereign taking large sums in payment from private individuals, and this will entail a great deal of careful planning, learning about the KYC/AML procedures that apply in these cases, and actually putting the infrastructure in place.”
However, once implemented, the advantages are undeniable, he said. “One large advantage of taking crypto-payments is that, rather than receiving US$, which becomes less valuable every day (and, in 2020/21, at a rapidly accelerating pace), they could be receiving payment in the form of an asset that continues to appreciate.”
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With early investors of cryptocurrencies essentially becoming overnight millionaires, Nesheim forecasts that many citizenship by investment programmes will have to adapt how they can service this client demographic.
“First off, at the service-provider level, companies need to start accepting payments in crypto to facilitate things for this investor class. Second, the programmes themselves need to change their structures to accommodate this type of applicant – that will entail enlisting the services of crypto-specialising due diligence providers, for example,” he said.
He believes that if the price of currencies like Bitcoin continues to rise, this demographic could account for up to a million and a half of crypto millionaires – a greater HNWI population than that of India, the UAE and Hong Kong combined. Many of these millionaires will seek ways of protecting this newfound wealth, and if you are a US citizen, that might mean renouncing your citizenship to save on the hefty tax fine on crypto earnings.
Roger Ver, an early investor of Bitcoin and CEO of Bitcoin.com, is a good example of this. Ver renounced his US citizenship in 2014 and invested in St Kitts and Nevis’ Citizenship by Investment Programme.
Whether it is serving a new demographic of crypto investors or introducing crypto as a payment option, it seems like there is no doubt that the two will become heavily interconnected in the next few years.
“Five years from now, I think 90 percent of RCBI consultancies will offer to take payment in crypto,” Nesheim predicts.