Linas Kmieliauskas, a Baltic crypto market expert and the publisher of the Bitcoin and decentralisation-focused newsletter, DESSENTER, talks with The Baltic Times Magazine about the peculiarities of the Baltic cryptocurrency market.
How does the Baltic crypto market look to you? In terms of regulation, why are there such immense differences between Estonia and the other two Baltic countries, Latvia and Lithuania?
As is the case with fintechs, compared to Estonia and Latvia, Lithuania seems to be the most active player in this nascent industry. A few years ago, Estonia saw a boom of BTC and crypto companies which seemingly became too difficult to manage and ensure all those companies are KYC/AML (know your customer / anti-money laundering) compliant. After Estonia’s crackdown on this sector, it became really difficult to run this type of business there. Therefore, companies moved to Lithuania.
Yet Lithuania has tightened the market, with the numbers of its participants reducing significantly. What are the main changes?
Starting on February 1st in Lithuania, crypto asset service providers (CASPs) were obliged to increase their statutory capital to 125,000 euros. In addition to this, there are stricter requirements such as the rule that the leaders of these companies must be permanent residents of the country, and that clients must be identified when a single operation exceeds 700 euros. As a result, on that day, the number of CASPs in Lithuania dropped from 840 to 206. However, by the beginning of April, the number of CASPs had already increased to almost 330 companies.
Did Latvia and Estonia follow Lithuania’s example?
Estonia has already become stricter towards BTC and crypto-related innovations, and it doesn't seem like they will change their stance anytime soon unless there are other developments that I am not aware of. As for Latvia, unfortunately, I don't have much information about their current stance on this matter.
Do you see any crypto regulatory changes coming in the countries this year? What could they be?
The entire EU and international markets are eagerly anticipating the Markets in Crypto-Assets (MiCA) regulation, which is expected to come into effect in 2024. It will establish clearer rules for both the crypto market and traditional finance players who wish to operate in this sector. MiCA primarily pertains to centralised CASPs, such as crypto exchanges, lending platforms, and so on. In any case, until MiCA is implemented, we will see numerous other regulations that need to be confirmed, which will determine how MiCA is implemented in specific areas. Additionally, the EU is working on other regulations related to KYC/AML, which could potentially impact the privacy of BTC and crypto users. Furthermore, there are concerning developments that could harm the decentralised finance (DeFi) sector.
What are the most successful crypto trade stories in the Baltics? And the biggest crashes?
It is difficult to identify these stories as they are mostly private. However, we can examine the tokens of some of the projects that originated in the Baltics. For instance, the Estonian ICO (initial coin offering) Polybius raised over USD 32 million in 2017, but now it is mostly inactive, and its token is down 99%, with virtually no trading activity. It is a similar case with the Lithuanian project Monetha's token. Nonetheless, some projects that have seen their tokens plummet are still developing their solutions. In any case, there are also strong companies working in this field without any tokens, such as the Lithuanian R&D company Super How?
Are investments in crypto currencies much riskier than in other non-tangible assets after the collapse of a major US crypto player earlier this year?
In general, BTC and crypto are considered to be riskier than traditional assets, but last year we saw multiple examples of shares of some large companies falling even more than BTC. Additionally, while collapses of centralised companies in the crypto sector last year increased the volatility of BTC and crypto prices, the effect was relatively short-lived. Now, investors are mostly focusing on the macro environment, problems within the banking sector, and the increasing adoption of BTC.