British entrepreneur and financier Richard O’Dell Poulden hopes that his new venture will relieve the plight of an underserved cohort: Bitcoin billionaires who want to buy a house.
In October, Poulden’s Gibraltar-based company Valereum—at the time named Valereum Blockchain—announced plans to buy an 80 percent stake in the Gibraltar Stock Exchange (GSX), to create an integrated exchange where conventional stocks and financial products could be traded for cryptocurrency. If the Gibraltarian financial regulator approves the deal, it would make the British overseas territory, also dubbed “the Rock,” home to the first stock exchange of this kind in the world. And it would, Poulden says, finally help the crypto millionaires squeeze more money out of their tokens.
Long seen as a tax haven, over the past few years Gibraltar has been working to restyle itself as a global cryptocurrency and blockchain hub, approving a regulatory framework for crypto businesses that want to be based in the territory. Poulden says that allowing financial trades in crypto will solve a big issue for people who hold vast cryptocurrency savings but are finding it hard to monetize them. Converting crypto into state-issued currency on an exchange often means incurring costs such as transaction fees and capital gains taxes; and trying to use it as a collateral to, for example, buy property is onerous—requiring large over-collateralization due to crypto’s tendency to swing wildly (ask the people whose Bitcoin stash has fallen in value by 23 percent since the start of the year). Even if upstart companies such as Miami-based Milo say they can change that, and Wall Street banks are reportedly looking to enter the fray, at the moment the conditions for securing crypto-backed loans are “not tremendously attractive,” says Poulden.
Valereum’s plan “makes crypto a more attractive asset,” Poulden says, “because you can put a portion of your cryptocurrency savings into a fiat security, you can borrow against that, and buy a house.”
According to Valereum executive director Patrick Lyle Young, if the company successfully acquires GSX, the exchange will operate as an ordinary stock exchange, with the sole exception that trades can be paid for in cryptocurrencies rather than just fiat. People will be able to exchange cryptocurrencies for stocks, which will be held in a trust company owned by the exchange. (In December 2021, Valereum bought Juno, a Gibraltar company specializing in the creation of trust companies.) These stocks, which could be from any company, could then be leveraged as collateral for other financial activities, like bank loans. In simple terms, it’s like exchanging collectible cards—everyone walks away happy, and the middleman gets nothing. In that way, Young says, the trade will appear as a cryptocurrency purchase and will not require the crypto to be converted into fiat. “The last thing [Bitcoin holders] want to do is sell, because if they sell the cryptocurrency they’re going to have a huge [capital gains] tax bill,” he says. “If they spend the cryptocurrency to buy another asset denominated in cryptocurrency, they don’t have that tax liability.” But since they would have access to the stock in the trust company, they might be able to, for instance, use them as collateral for a mortgage.
Valereum’s initial announcement of its plans to acquire GSX mentioned Bitcoin, Dogecoin, Cardano, Ethereum, and Tether among the cryptocurrencies that will be approved for trades on the stock exchange, though Young says the final list is still being worked out.