The First Crypto Bank in Puerto Rico Rolls Out Digital-Asset Custody Service

FV (Fintech Ventures) Bank, a global financial entity registered in the U.S. territory of Puerto Rico, has launched a digital-asset custody service for seamless safeguarding and interoperability of crypto and fiat, according to Bloomberg. 

The crypto custody feature will first support Bitcoin (BTC). Later on, Ethereum (ETH), Tether (USDT), and USD Coin (USDC) will be incorporated in coming weeks, with plans to add more cryptocurrencies in the future. 

FV Bank finds itself in a rare playing field in the growing banking-meets-crypto industry, according to Steven Beattie.

The financial crime consulting and crypto risk leader at EY added:

“First movers are incredibly valuable. As a first mover you have a chance to change your competitive position across the industry. But being first creates some risk.”

Even though various cryptocurrency exchanges enable users to swap fiat for crypto, only a few US-regulated banks have this ability. 

Miles Paschini, FV Bank’s CEO, pointed out:

“Our primary goal since founding FV Bank has been to help drive blockchain technology innovation in financial services by offering institutional clients a technology solution seamlessly integrated into a regulated bank and trust model that offers traditional banking along with digital assets custody and settlement.”

FV Bank sees the digital-asset custody service as a stepping stone toward bridging the gap between the traditional financial sector and the crypto economy. Paschini added:

“We have also advanced best in class AML procedures for digital assets by combining traditional bank compliance functions with specialized blockchain analytics, to ensure we are positioned as a leader and role model for how banks can participate in the convergence of traditional financial services and the digital asset economy.”

Meanwhile, France-based BNP Paribas recently entered the crypto custody bandwagon, Blockchain.News reported.

As the second largest global bank in Europe, BNP Paribas partnered with Swiss-based crypto infrastructure firm Metaco to enable the offering of digital assets custody services to its customers. 

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Bitcoin Millionaires Are Flocking To This North American Tax Haven. But What Do The Locals Think?

Bitcoin has made its own fair share of millionaires and with the recent bull rally, there is no doubt that this number went up drastically. This has led to a number of issues of investors who have made their money off the digital asset, the main one being taxes. A lot of these millionaires have begun to flee to places with less strict tax laws, as well as better weather conditions.

Bitcoin Millionaires Flock To Puerto Rico

A recent report from CNBC documents the movements of bitcoin millionaires towards Puerto Rico and its beautiful islands. The subject of the report, 36-year-old crypto entrepreneur and investor David Johnson, outlines why he moved himself and his entire family to the North American country. For the entrepreneur, the tropical paradise was a big push, as well as the tax breaks offered to those who spend at least 183 days on the island.

Related Reading | Altcoins Are Encroaching On Bitcoin’s Dominance On Digital Payments

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Johnson also noted that the decision to move was also predicated on the fact that his friends had all moved to the same destination. The 36-year-old who lived in New York before the move said there weren’t any of his friends left in what is said to be one of the most expensive cities in the world as they had all moved to Puerto Rico.

“That’s where all my friends are. I don’t have one friend left in New York, and maybe the pandemic accelerated this, but every single one of them has moved to Puerto Rico,” Johnson told CNBC.

In addition to offering tax breaks to those who spend a significant amount on the island, residents are also allowed to retain their American passports.

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Locals Not Feeling The Love

Puerto Rican locals are not exactly happy about seeing the move to the tropical paradise. This has less to do with the people coming in and more to do with the fact that the locals themselves do not qualify for the tax exemptions that these non-Puerto Ricans enjoy.

Residents like Johnson who move in from other American states after making their millions with bitcoin and crypto do not have to pay capital gains on their earnings. However, Puerto Rican citizens are having to pay up to 15% long-term capital gains tax.

Related Reading | American Rapper Lil Baby On Holding Bitcoin And Ethereum Over Fiat

This disparity between locals and non-locals has obviously now been the source of tension between the two groups. These tax breaks which were meant to bring more jobs and investors into the region are now being utilized by residents who are trying to get out of paying capital gains tax.

Additionally, the influx of new wealthy residents is causing property costs to surge. Diaz Fournier of Luxury Collection Real Estate told CNBC that the increased demand has led to prices not seen before. “I’ve been tracking the markets for several years, and I was not expecting this,” Fournier said. “You have properties in Dorado Beach that have been sold for more than $20 million.”

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Puerto Rico to Become a Prefered Destination for Crypto Investors, Establishing Friendly Taxation and Island Lifestyle

Under Act 60 or the Individual Investors Act, non-Puerto Rican residents get exempted from paying capital gains for investments realized. This is one of the factors attracting crypto investors, mostly Americans, to the Island. - 2022-01-18T163927.339.jpg

The rule is crypto-friendly because investors in the U.S. are required to pay 37% of capital gains in the short term and 20% in the long term. It came into effect nearly ten years ago to draw investors to Puerto Rico. 

Giovanni Mendez, a corporate advocate and tax expert, acknowledged that most of the entities seeking his services were crypto companies or investors.

David Johnston, a crypto entrepreneur, relocated to Puerto Rico from New York in March 2021 and disclosed that most of his friends had also made the move. He stated:

“I don’t have one friend left in New York, and maybe the pandemic accelerated this, but every single one of them has moved to Puerto Rico.”

Johnston added that his whole office building was surrounded by crypto start-ups and companies.

“Pantera Capital (a crypto fund) is on the fifth floor, and then there’s a co-working space on the sixth floor. My company, DLTx, took over the eighth floor, and took over the twelfth floor. That’s all happened in the last 12 months.”

Therefore, crypto-friendly policies, coupled with a year-round tropical climate with picturesque beaches, are making Puerto Rico a popular destination. 

Different places are gearing up to become crypto destinations. For instance, Brazilian city Rio de Janeiro recently revealed plans to invest 1% of its reserves in Bitcoin, with plans underway to have tech companies located in Porto Maravalley presented with tax incentives. 

Some country is also developing by building a crypto-friendly environment to potential investors. Last November, El Salvador President Nayib Bukele announced the nation’s intention to build the first fully functional Bitcoin city to boost crypto adoption and awareness. 

Image source: Shuttstock


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Puerto Rico wants to combat corruption with blockchain technology

Following another corruption scandal, the government of Puerto Rico is reportedly seeking to improve its anti-corruption efforts by adopting blockchain technology.

Puerto Rican House Speaker Rafael “Tatito” Hernandez announced that lawmakers will hold meetings with local blockchain enthusiasts this month to discuss the potential adoption of blockchain technology to reduce corruption.

The implementation of blockchain and smart contracts could bring more transparency and accountability to the public sector, the official said at a Puerto Rico Blockchain Trade Association conference, Bloomberg reported on Dec. 6.

“We have a real credibility problem and this might be part of the solution,” Hernandez said, adding that there is also a broader effort to make Puerto Rico a hub for crypto and blockchain innovation. According to the official, the emerging industry could be a way for the bankrupt commonwealth to revive its economy.

“Back in the 60s and 70s we had the niche of manufacturing. […] This is a new niche, a new opportunity to create jobs,” Hernandez said.

The speaker’s comments came amid growing corruption concerns in Puerto Rico as a local mayor reportedly pleaded guilty to accepting more than $100,000 of bribes in cash last week.

Puerto Rico is not alone in exploring the potential anti-corruption capabilities of technologies like blockchain and digital currency. Last year, the Ministry of Foreign Affairs of Denmark reported on blockchain’s potential to fight administrative and political corruption. The United Nations’ drugs and crime agency also advised Kenya to use blockchain to combat government corruption in November 2020.

Related: Gibraltar’s government plans to bridge the gap between public and private sectors with blockchain

While multiple jurisdictions are looking at cryptocurrencies’ underlying technology as a tool to cut corruption, some governments like Russia prohibit its deputies and officials from holding crypto, citing corruption concerns.

One of the world’s most corrupt countries, Russia could in fact use crypto to reduce corruption, according to Maria Agranovskaya, a legal attorney and fintech expert in the Russian State Duma. Agranovskaya told Cointelegraph that cash is way more popular for illegal activity like corruption because it’s more difficult to trace:

“If you convey proper KYC and AML at the start, crypto flows can be much more easy to trace, only proper rules of the game should be in place.”