MiCA and the cross-border reality

Graduate · enrolled learners

This lesson opens with BitMEX, 2020 to 2021.

What happened

BitMEX was a large cryptocurrency derivatives exchange operated through offshore entities, its parent HDR Global Trading registered in the Seychelles, and it treated that offshore structure as if it placed the business outside US regulation while US customers traded on it. In October 2020 the US CFTC charged BitMEX and its founders with operating an unregistered derivatives platform and failing to maintain anti-money-laundering and know-your-customer programs, and the Department of Justice charged the founders with violating the Bank Secrecy Act. In August 2021 the BitMEX entities consented to a 100 million dollar CFTC penalty, up to half of it offset by what they paid FinCEN, and the CFTC order found BitMEX had known from 2014 to 2020 that US customers could and did trade on the platform. The founders pleaded guilty to the Bank Secrecy Act charge in 2022. The founders' position that Americans did not use the platform did not survive the evidence, and the offshore structure protected nothing: because it served US persons, US law reached it regardless of where its entities were incorporated. Registering in the Seychelles did not move the customers, and jurisdiction followed the customers.

The decision point

A company chooses where it incorporates, but it does not thereby choose which laws apply to it, because jurisdiction commonly follows the customer rather than the company's flag: serve a country's persons and you are generally within that country's regulatory reach whatever your registration says. BitMEX is the clean demonstration, an offshore exchange that served US customers and paid 100 million dollars for treating its Seychelles registration as an exit, its founders pleading guilty to a US law. The same principle runs the other way into Europe, where MiCA created one harmonized regime across the EU and EEA: providing crypto-asset services there requires MiCA authorization, and a firm based outside the bloc may serve an EU client only at that client's own exclusive initiative, an exemption ESMA reads very narrowly. So the decision an institution makes is to map its activity against every jurisdiction whose persons it actually serves, not only the one where it is incorporated, because the flag of registration is a choice the firm controls and the reach of a jurisdiction over its own people is not.

Recorded loss

$100,000,000

Orientation and Year One are open: anyone can read them without an account. From Year Two onward the lessons are for enrolled learners, because progress through the later years only means anything if it is tracked against a record.

It is free. We do not sell the list and there is nothing to buy at the end of it.