Wakanda 4.0 interviews Ashveen Gopee, the Managing Partner of Lex Frontier Law Firm, a member firm of the Alliott Global Alliance and a member of the Mauritius-Swiss Chambers of Commerce and Industries.
W: The Cryptoverse Summit is coming at a time when the crypto market is highly bearish. Surely hearing about crypto is the last thing on people’s mind. What is your position on this?
LF: Given that the state of the price of crypto assets is in your very first question, I will beg to differ that crypto is the last thing on people’s mind. In fact, this drop is fascinating people across the board. I believe that crypto assets are here to stay, drop or no drop.
Although it was not panned out to be that way, the holding of the event seems to be the perfect timing.
W: Indeed, this seems to be quite the talk of the town. What is the cause of this dip?
LF: In order to answer this question, let us take a slight detour to understand what, legally speaking, a crypto asset is, beside being just a set of encrypted data.
It is what we make of it. Initially crypto asset gained mainstream tractions as a mode of payment, akin to a currency. In fact the term cryptocurrency was and still is commonly used to refer to “virtual asset” (which is how it is being mostly legally termed in a number of jurisdictions and also by the Financial Action Task Force) such as bitcoin. This perspective being undeniably dictated by the white paper published by the creator of Bitcoin, entitled Bitcoin: A Peer-to-Peer Electronic Cash System, a technical manifesto outlining the principles of trustless peer-to-peer electronic payment system.
But what it represented, currency or commodity, was not a settled issued.
There has been a number of court battles already in defining its nature, such as in India in the matter of Internet and Mobile Association of India v Reserve Bank of India, Writ Petition (Civil) No.528 of 2018, where one of the crux of the matter to be determined was whether or not it was a currency.
In the words of George Friedman, the founder of Geopolitical Futures LLC “ Bitcoin is neither fish nor fowl…But both pricing it as a commodity when no commodity exists and trying to make it behave as a currency, seem problematic. The problem is not that it is not issued by the Government nor that it is unregulated. The problem is that it is hard to see what it is.”
Subsequently, as it gained greater traction, it is being more and more seen as a storage of value rather than a currency.
In Mauritius, for instance, the virtual asset is defined in the Virtual Asset and Initial Token Offering Services Act 2021 a digital representation of value that may be digitally traded or transferred, and may be used for payment or investment purposes; but does not include a digital representation of fiat currencies, securities and other financial assets that fall under the purview of the Securities Act of Mauritius.
The Financial Services Commission of Mauritius in its “Fintech Series, Guide Note, Recognition of Digital Assets as an asset-class for investment by Sophisticated and Expert Investors” provided that cryptocurrencies “have “value” since they are exchangeable for other things having value, thereby showing characteristics akin to physical commodities such as grain or precious metals.”
Coming back to the question now, for some time bitcoin, as a storage of value, seemed to be immune against market fluctuation. But since it is more and more considered as a form of investment, bitcoin is now considered as a risk asset, the latter being assets that experience price movement under any market.
The current volatility in the price of bitcoin is linked to rising inflation and worries over tighter monetary policy in the United States, which has caused investors to move away from high risk asset, such as bitcoin.
This is not the only contributing factor though. Certain instability in some stablecoins, such as LUNA, the native token of the Terra blockchain network, has caused the Luna Foundation Guard, which is an organisation that supports the Terra network, moved its bitcoin exchanges and created a surplus on the market. The rest is history.
W: According to you, is there any action that ought to be taken from the dip that we have seen in recent days.
LF: I believe that as we permeate more and more into this, well uncharted terrain, there will be greater need for regulation. I hear that some would advocate against this as this goes against the underlying spirit of the creation of bitcoin (which saw the daylight at the hight of a global financial crisis), that is to create a peer-to-peer payment system independent of the trusted third party, such as banks, I believe that mindset is utopic. While I am convinced that crypto assets can be used as a financial inclusion for the bankless, which is a feature very common on the African continent and has helped the economy to a certain extent, there is the other facet of the (bit)coin and investors need to be afforded with some degree of protection.
By way of example, here digital assets, including cryptocurrencies may constitute an asset-class for investment by certain types of investors, such as Expert Investors, Sophisticated Investors and the regulator highlights that they may not be suitable for investment by retail investors.
W: Regulation may stifle the use of cryptocurrencies, don’t you think?
LF: Not necessarily. When I speak of regulation, I speak of protection and not of banning cryptocurrencies. Exchanges for instance need to come under the purview of a regulatory framework. Binance is a good example of that. It is now a fully regulated digital asset service provider in France and has recently launched a Binance Refugee Crypto Card to come to the assistance of the Ukrainian force to move to EEA countries because of the raging war. So, regulation is not akin to stifling but protection.
Coming back to the caveat of the Financial Services Commission, I wish to clarify that it is not meant to ban retail investors from investing into cryptocurrencies, but it is meant to raise a sound of warning. Don’t risk your life savings.
W: Speaking of regulation, you mentioned earlier that Mauritius has recently adopted legislation regulating virtual asset service providers. What does this represent for Mauritius?
LM: This is a major leap forward that has put Mauritius into the limelight in the crypto world. The object of the Act is to provide a comprehensive legislative framework to business activities of virtual assets and initial token offerings.
We have to bear in mind that at its base, it is essentially an anti-money laundering and combatting of financing of terrorism piece of legislation in compliance with the recommendation of the Financial Action Task Force.
The enactment of this Act will bring comfort not only to international exchanges who are seeking to be licenced in a recognised jurisdiction but also to investors.
W: Money laundering remains a major issue with cryptocurrencies. What is your position on this?
A: We have to remind ourselves that money laundering existed before cryptocurrencies. While cryptocurrencies (mostly bitcoin) have quickly gathered a notoriety as a vehicle to facilitate money laundering away from the scrutiny of the regulators, it is worth noting that a cryptocurrency can be traced on the blockchain as to where it has been, a feature which is impossible with fiat currencies. The more we are seeing exchanges which want to be regulated and engaged in clean and transparent activities the more the issue of money laundering will be diluted with regards to cryptocurrencies.
Let me take a quick example. There was a case before the High Court of England, AA v Persons Unknown and others,  EWHC 3556 (Comm), where hackers hacked the system of a Canadian insurance company. A ransom amount was asked to be paid partly in bitcoin, which was things done by the insurance, UK based, of the insurance company. The bitcoins were tracked to the wallet held by the crypto currency exchange Coinbase and a worldwide freezing injunction was applied for and obtained. This would have been impossible with fiat currencies.
W: As an end word?
LF: First of all, I would wish to highlight something here.
While cryptocurrencies have created the buzz, we should not lose sight of the underlying technology which is blockchain. This technology will truly revolutionise the world in the way we do things. Smart contracts, for instance, which runs on certain blockchain, offer immense possibility of usage in a number of sectors, such as in real estate, where transfer of rights to an asset can be recorded on the blockchain, the supply chain management where raw materials are tracked to its end products so as to certify quality and ethical trade, insurance where claims can be automated disputes can be resolved with proofs, trade finance, digital identity and the list goes on. Smart contracts offer a number of attractive facets, such as making transactions cost-effective, fast-performance, accurate and error-free, free from interruption, secured, autonomous.
I believe that this feature should be explored in greater length, and as for us we should within the African Continental Free Trade Area come up with a coherent international legal framework to embrace the use of this feature of the technology.
Regarding cryptocurrencies here, there might be a myriad of uncertainties surrounding it, including its volatility, however one thing which is a certainty is that this application of the blockchain is here to stay and the legal system will always be the foot-dragger. It may be somewhat an unruly horse and an international blueprint of a regulatory legal framework is much needed.
Ashveen is a commercial and fintech lawyer and also holds a Bsc. Electro-mechanical engineering degree.
Ashveen is a speaker at the first Cryptoverse Summit held in Mauritius.
Ashveen has recently published an article on Crypto Currencies in the Law Journal of International Banking Law and Regulation.