Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro. Coinbase, the largest U.S. crypto exchange, has picked Bermuda for its next big expansion. MM talked with Coinbase CEO Brian Armstrong and Bermuda Premier David Burt about why the island is becoming a hub for the digital asset business — and why it also faces hurdles thanks to banking industry jitters. Bermuda — a long-time offshore home for international insurers — opened its doors to the crypto industry with a 2018 digital asset law. It now lists 17 licensed digital asset businesses, with last week’s Coinbase announcement marking its biggest get yet. Other big names include Circle and Cash App. Coinbase is increasingly looking for investments outside the U.S. as it clashes with Washington regulators — most prominently SEC Chair Gary Gensler. Armstrong told MM that the company plans to launch a derivatives exchange in Bermuda, as it keeps working on securing approvals for derivatives offerings in the U.S. Bermuda isn’t a big market itself — its population is around 65,000 people — but it can serve as a base as the company looks to reach customers outside of countries where it already has a major presence. “We need to seek out jurisdictions that will enable us to serve the long tail of countries that are not the U.S., not the U.K., not some of the major financial hubs,” he said. Burt, Bermuda’s youngest premier, has become an increasingly prominent figure in the crypto world. MM asked whether he had any advice for how the U.S. could shore up its digital asset regulatory regime — a patchwork of rules for “TradFi” that’s often maligned by crypto startups like Coinbase. “I'll be polite and say that regulatory clarity is helpful for any business,” he said. Burt wants to entice digital asset businesses with something bigger than just licenses that help them serve customers off-island. He wants Bermuda’s 20-square miles to be a kind of test-market for companies as they develop digital asset products, allowing them to kick the tires with local adoption before they scale up for the rest of the world. He sees it as a potential boost to innovation in Bermuda. There’s a big hitch, and it’s one that is a growing problem for crypto firms writ large: the reticence of traditional banks to serve the digital asset economy. Burt said Bermuda is exposed to a bottleneck because it’s seen as a high-risk location for money laundering – something he attributes to its geographic location, which creates issues for its correspondent banking relationships that allow for the exchange of U.S. dollars. So Bermuda is in the process of licensing a new bank that is expected to help grow local adoption of digital assets. “The real question is, how do we make sure that the country can see local benefits, while also positioning it as an attractive space for digital asset companies?” he said. “We view our entire island as an accelerator and an incubator.” It’s Monday — How is your company preparing for a possible debt limit breach? Let us know: Zach Warmbrodt, Sam Sutton.
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