70% of license applications were rejected. With the outbreak, is Malta no longer in love with cryptocurrencies?

Malta’s financial regulator said last week that around 70% of cryptocurrency and blockchain startups that completed the first phase of their application process failed to obtain a Malta financial services license.

Malta’s cryptocurrency regulations were hailed as the most innovative in the world when they were announced in 2018. But industry insiders say that despite the country’s hyped cryptocurrency-friendliness and “Blockchain Island” image, the application process is costly and the regulations are too strict.

Leon Siegmund, board member of the Malta Blockchain Association and founder of Bitcoin Club Malta, said:

“Malta’s regulatory rules stem from a technocratic, rent-seeking and EU compliance mentality. It is the exact opposite of what is really needed.”

The Malta Financial Services Authority (MFSA) received 340 applications for a license last year. However, it has not issued any licenses so far.

Is Malta no longer crypto-friendly?

The MFSA has published a list of 57 companies that applied for licenses but did not complete the application process by November 2019 as required.

(List of companies that have not completed their applications)

Among them is Palladium Exchange, which is owned by Malta-based insurance and asset manager Global Capital. Its ICO was billed as the world’s first convertible token offering, with investors promised they could exchange their tokens for company shares at a later date.

The ambitious plan is to raise 150 million euros ($160 million) and use half of the proceeds to buy a controlling stake in a European bank and the other 35% to develop a cryptocurrency exchange.

Palladium did not respond to a request for comment, and it’s unclear what exactly went wrong with the program.

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

Binance is not one of them. The world’s largest exchange was once a star company in Malta. However, in February this year, the MFSA announced that Binance no longer has any authorized activities in Malta.

Blockchain Island under the Clouds

However, there’s another reason why this blockchain island has failed to live up to its initial promise.

Malta has long been the subject of EU scrutiny, particularly over money laundering, cash-for-passport schemes and, most recently, the murder of a journalist.

The authorities dragged their feet on the investigation. But in November 2019, Maltese billionaire Yorgen Fenech was arrested on suspicion of ordering the journalist's murder. New evidence linked him to the government and forced a wave of resignations.

Among them is Malta’s Prime Minister Joseph Muscat, who has made blockchain one of his government’s future goals, even as the technology and its fervent supporters have fallen out of favor.

Even Malta's new Economy Minister Silvio Schembri recently changed his tune.

Schembri, the parliamentary secretary for digital economy who oversaw Malta’s groundbreaking cryptocurrency legislation, has encouraged businesses and workers to settle in Malta for three years as the Mediterranean island enjoys Europe’s fastest-growing economy.

But Schembri has stopped talking about cryptocurrencies for a while now. In March, when Malta began to suffer from the COVID-19 pandemic, he warned foreign workers that if they encountered financial difficulties, they must leave the country immediately and not count on government assistance. Malta's large number of expatriates took to Facebook to complain wildly, and he later apologized for his remarks.

Meanwhile, applications for cryptocurrency business licenses are still being reviewed by the MFSA, but the number of applicants is now low.

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