70% of “Blockchain Island” firms have given up

Approximately 70% of the crypto and blockchain startups which completed the first stage of the application process failed to obtain a Maltese financial services license, according to data published by the Maltese financial regulator last week. 

Malta’s crypto regulations were billed as the most innovative in the world, when they were announced in 2018.  But despite the nation’s crypto-friendly image, and “Blockchain Island” hype, the application process is expensive, and regulations are too stringent, industry insiders told Decrypt. 

“The regulation in Malta came out of a mindset of technocracy, rent-seeking and EU-obedience. Exactly the opposite of what’s needed,” said Leon Siegmund, a board member of Malta’s Blockchain Association and founder of Bitcoin Club Malta.

The Maltese Financial Services authority (MFSA) received 340 preliminary crypto license applications last year. But, to date, it has not issued a single licence.

Malta’s cryptocurrency flop

The MFSA published the names of 57 companies which applied for a license but who did not, as mandated, complete the process by November 2019. 

Among them is the Palladium Exchange, owned by Maltese insurance and asset management firm Global Capital. The company’s initial coin offering was billed as the world’s first initial convertible coin offering, and investors were promised that they could convert tokens into company shares at a later date. 

The ambitious plan was to raise €150 million ($160 million,) and invest half the proceeds to buy a controlling interest in a European bank, and another 35% to develop a crypto exchange.

Palladium did not reply to request for comment, and it’s not known what happened to the scheme.  

In fact, the fate of 257 of the 340 initial applications is also unknown, because only 26 startups—predominantly cryptocurrency exchanges— are still contenders in the application process, according to the MFSA. 

And they don’t include Binance. The world’s biggest exchange by market cap was once the jewel in Malta’s crown. But, in February, the MFSA controversially announced that Binance no longer had any licensable activity in Malta. 

Blockchain Island: Under a Cloud

But there’s another reason why Blockchain Island failed to live up to its original promise.

Malta has long attracted European Union scrutiny over money laundering, its “cash for passport” schemes, and—most recently—the murder of journalist Daphne Galizia Caruana, who linked government ministers to the Panama Papers.

The authorities dragged their heels over the investigation. But in November 2019, the man who allegedly ordered her murder, Maltese billionaire buisnessman Yorgen Fenech, was apprehended. New evidence linked him to the government, and forced a wave of resignations.

Malta’s disgraced prime minister Joseph Muscat was among them. He made blockchain one of his government’s futuristic goals, and the technology has fallen out of favor along with its principle enthusiast. 

Even Malta’s new economy minister, Silvio Schembri has recently changed his tune. 

In Muscat’s government, Schembri was parliamentary secretary for the digital economy, and oversaw Malta’s groundbreaking cryptocurrency legislation. He encouraged businesses and workers to settle on Malta while—for three years in a row—the Mediterranean island enjoyed the fastest growing economy in Europe.

But Schembri doesn’t talk about crypto these days, and his welcome smile is looking strained. In March, as the covid-19 pandemic hit Malta, he warned foreign workers that, if they run into financial difficulties, they must immediately leave the island, and should not expect state aid. Malta’s substantial expat community  took to Facebook to complain, and the minister later apologized for his remarks.

Meanwhile, crypto license applications continue to be vetted by the MFSA, but not too many people are applying for them these days.