Bermuda: The Offshore Pioneer With the World's First Digital Asset Business Act

When the Digital Asset Business Act entered into force in Bermuda in 2018, no other jurisdiction had enacted equivalent legislation. Malta was working on its framework. Switzerland was developing its DLT Act. The United States remained mired in jurisdictional debate between the SEC and CFTC. Bermuda — an island of 65,000 people in the North Atlantic — moved first.

This was not coincidence or luck. It was the calculated decision of a small financial centre that had built a global reinsurance and alternative investment industry through exactly this kind of first-mover regulatory leadership, and which understood better than most that in offshore finance, regulatory clarity is the product.

Bermuda’s Financial Services Heritage

To understand DABA, you need to understand what Bermuda already was in 2018. Bermuda is the world’s third-largest reinsurance market after the US and EU, with annual premiums in the tens of billions of dollars flowing through Hamilton-based entities. It hosts hundreds of captive insurance companies, dozens of catastrophe bond issuers, and a substantial alternative investment fund industry. The Bermuda Stock Exchange lists insurance-linked securities and fund structures from across the world.

This financial services sophistication was built on the same template that would later attract crypto: light-touch but credible regulation, tax neutrality (no corporate income tax, no capital gains tax, no withholding tax), English common law, political stability under British Overseas Territory status, and a regulator — the Bermuda Monetary Authority — with the technical capacity to engage with complex financial structures.

The BMA regulates banks, insurance companies, investment funds, and financial institutions in Bermuda. By 2018 it had decades of experience supervising sophisticated financial structures. The jump to digital asset supervision was operationally demanding but institutionally tractable: the BMA already had the legal expertise, the supervisory culture, and the political backing to move quickly.

The Digital Asset Business Act: What It Covers

DABA created a licensing regime for entities carrying on “digital asset business” in or from Bermuda. The defined categories are comprehensive: issuing, selling, or redeeming digital assets; operating a digital asset exchange; providing digital asset transfer services; providing digital asset custodial services; and operating as a digital asset derivative exchange.

The licensing framework has multiple tiers. A Class F licence is the full licence for firms providing the broadest range of services. Class M is a modified licence for firms in development or with restricted service scope. The application process requires disclosure of ownership structure, AML/CFT programme, technology systems, and management fit-and-proper assessments. Capital requirements are risk-based.

The BMA established a regulatory sandbox — formally a class of licence allowing firms to test products or services under close supervisory oversight before seeking a full licence. The sandbox was important for early-stage crypto businesses that did not yet have the operational scale to meet full capital requirements but wanted to engage under regulatory supervision rather than operate in a grey area.

Major Firms and Bermuda’s Competitive Position

Bermuda attracted significant crypto industry attention following DABA. Bittrex, at one point one of the largest crypto exchanges by volume, chose Bermuda as its regulated domicile. Multiple crypto hedge funds — entities that trade crypto assets on behalf of institutional investors — registered in Bermuda, using its existing investment fund infrastructure alongside DABA’s digital asset framework.

The fund industry overlap is important. Bermuda’s investment fund legislation is well-established and widely used by alternative investment managers globally. When crypto hedge funds needed a regulated domicile, Bermuda could offer both investment fund regulation (for the fund vehicle itself) and digital asset regulation (for the trading activities) within a single jurisdiction, from a regulator with real expertise in both.

Competition With the Cayman Islands

Bermuda’s primary competition for crypto fund domicile is the Cayman Islands — a larger offshore financial centre with a more established fund ecosystem. The Cayman Islands VASP Act came into force in 2020, two years after DABA, and Cayman’s existing fund infrastructure is deeper: more administrators, more lawyers, more auditors with crypto experience, larger established funds using the Cayman exempted limited partnership structure.

The competitive dynamic is one of size and depth versus speed and specificity. Bermuda moved first and built DABA as a purpose-built framework with genuine regulatory sophistication. Cayman has larger infrastructure but implemented its crypto framework later. In practice, the market has supported both: some funds choose Bermuda for its DABA-specific expertise and the BMA’s accumulated supervisory experience; others choose Cayman for the deeper service provider ecosystem and the familiarity of its fund law.

The Political Economy of Small Offshore Centres

Bermuda’s DABA demonstrates a truth about small offshore financial centres: they can be regulatory innovators precisely because their political economy is simple. Bermuda’s economy is heavily dependent on financial services. The government’s incentive to attract financial services business is clear, transparent, and politically supported. The BMA’s incentive to develop credible regulation — as opposed to a race to the bottom — is equally clear: Bermuda’s premium is its reputation, and reputational damage (from facilitating fraud or money laundering) would be economically catastrophic.

This alignment of incentives produces regulatory behaviour that is simultaneously more flexible and more genuinely supervisory than many larger jurisdictions manage. DABA was enacted quickly because Bermuda’s political system could act quickly when the economic case was clear. And the BMA has enforced DABA meaningfully because lax enforcement would threaten the reputational foundation on which all Bermuda financial services rest.

For crypto businesses seeking regulated offshore domicile, the Bermuda model offers something genuinely valuable: a first-mover framework, a sophisticated regulator, tax neutrality, and a track record of regulatory credibility that extends back decades before blockchain existed.