Cryptocurrency Regulatory Landscape in The Bahamas Prior to 2024

The Bahamas, prior to 2024, had positioned itself as a significant player in the global cryptocurrency market. The country’s approach to cryptocurrency regulation was encapsulated in the Digital Assets and Registered Exchanges (DARE) Act, which was implemented in December 2020. This act was a pivotal move, as it not only created a legal definition for digital assets but also established a comprehensive regulatory framework for digital asset businesses and activities within the nation.

The DARE Act required issuers to comply with several obligations, including the provision of an offering memorandum detailing the objectives, risks, and terms of investments in cryptocurrency. It also mandated continuing disclosure on the status of investments and maintained the purchasers’ rights to rescission or damages and withdrawal. Additionally, the act gave digital asset providers, particularly those based outside The Bahamas, the option of registering their names. A commission was set up to keep a registry of initial token offerings containing specific information.

Furthermore, the act addressed conflicts of interest, third-party relationships, reward program transactions, and definitions for digital assets used in video games. It also imposed restrictions on proof-of-work or mining of digital assets within the country. This regulatory framework was essential in safeguarding investors, as exemplified by the government’s response to the collapse of the FTX exchange, a major cryptocurrency company that had established its headquarters in The Bahamas.

In the wake of FTX’s collapse in late 2022, The Bahamas sought to further tighten its cryptocurrency laws. The proposed bill aimed to encompass a range of aspects including stablecoins, proof-of-work mining, staking, and non-fungible tokens (NFTs). This bill was anticipated to become one of the most advanced pieces of digital asset legislation in the world. It stressed the need for operators of digital asset exchanges to ensure that their systems and controls were adequate and appropriate for the scale and nature of their business. The bill also introduced a new regulatory framework for stablecoins pegged to stable assets like the U.S. dollar, following the collapse of Terra’s terraUSD stablecoin in the previous year.

DARE Bill 2023, which was expected to come into force at the end of Q2 2023, expanded on the customer protection rules and introduced disclosure and registration requirements. This bill further expanded the definition of “Digital Business Activities” to include offering financial advice on digital assets, digital asset derivatives activities, blockchain node operation, and staking services. It also compelled wallet providers and crypto custodians to protect and ensure the accessibility of customer assets and subjected institutional and pooled staking services receiving customers’ digital assets to unique disclosures. Additionally, the bill defined stablecoins and outlined rules for their reserve management, including segregation and redemption.

The developments in The Bahamas’ cryptocurrency regulations up to 2023 indicated the country’s commitment to evolving and improving its legislative framework in response to the dynamic nature of the digital asset market. This proactive approach was aimed at enhancing investor protection, ensuring market stability, and aligning with international standards​​​​​​.