Manila, PHILIPPINES – It may be one of the most remote corners of the Philippines, but that hasn’t stopped cryptocurrency exchanges, looking for regulatory arbitrage opportunities to throw their lot in with the Cagayan Economic Zone Authority (CEZA). According to the Manila Times, three cryptocurrency exchanges have secured provisional licenses worth about US$3 million for the special economic zone in the northernmost tip of the Philippines. CEZA is a 11-hour bone-crushing, backbreaking drive on some of the worst roads imaginable from the Philippines’ capital Manila. With patchy internet connectivity and infrastructure confined to dirt roads in some cases, CEZA, which also consists of a free port, instead of playing host to economic activity has played host to rotting cars abandoned in distribution parks the size of football fields. But that hasn’t stopped CEZA from looking for new revenue generating opportunities, of which cryptocurrency exchanges have been a prime target.
To be sure, Filipinos, for whom 10 percent of GDP is contributed by overseas remittances, have been quick to jump aboard the cryptocurrency bandwagon. With remittance charges as much as 10 percent of the value of the transaction in some cases, plucky Filipinos have been using apps such as Abra and cryptocurrencies to cut down on the slippage and despite the fall in cryptocurrency prices, Filipinos’ appetite for the digital stuff has not waned one bit.
During the formal awarding of the cryptocurrency exchange licenses in Pasay City on Tuesday, Raymundo Roquero, deputy administrator for planning and business development of CEZA said that the cryptocurrency exchanges were from Hong Kong and Thailand, identifying Hong Kong’s Golden Millennial Quickplay (GMQ) as one of the recipients, with the other two licensees having received approval but whose licenses have yet to be released. Roquero, speaking on the sidelines of the award ceremony, said,
“These are offshore companies, and they have (each) committed investments of US$1 million.”
“GMQ intends to build infrastructure in Sta. Ana, Cagayan and will have an incubation period of two years, so they are already allowed to operate here in Manila.”
And these two years in Manila may be the deciding factor as to why cryptocurrency exchanges are so keen to sign up for CEZA. According to a source close to the matter and who spoke on condition of anonymity,
“Have you seen CEZA? It’s a dump. Nobody in their right mind would locate anything there.”
The road from Manila to Cagayan is poorly paved, disintegrating into a dirt path in some stretches and is best conquered by four-wheel drive, hardly the road to a technological haven. Yet cryptocurrency exchanges have shown interest in the area, specifically because they will be given a license to operate in Manila during the interim, while infrastructure is being built out, which represents a real opportunity for the exchanges. Filipino appetite for cryptocurrencies remained firm, with the total amount of cryptocurrencies having risen, while their dollar value has slipped and for many companies, the captive Filipino market has been too irresistible to pass up.
According to CEZA, 70 companies have applied to operate there, with each being required to invest an initial US$1 million within two years of operation, a small amount for a cryptocurrency license which can make as much in a month of operations, for a medium-sized cryptocurrency exchange. For the CEZA, it has been a windfall. According to Roquero,
“When they (the cryptocurrency exchanges) apply, they will pay an application fee of US$100,000 and a license fee of US$100,000. Then you go into probity checks, then application programming integration (API), which costs an additional US$100,000.” said.
“Three other applicants have fully paid these obligations, but are still undergoing probity checks,”
Importantly, according to a CEZA official, the fees are “all non-refundable. If you fail the probity check, you cannot get these. We will sign licensing agreements with these companies.”
Which suggests that there is ample room for administrative “discretion,” which could potentially have unintended consequences. Nevertheless, CEZA has touted itself as a new cryptocurrency haven, with the official adding,
“Companies want to invest here because we are the first to provide rules and regulations for cryptocurrencies.”
Whether or not that plays out remains to be seen. For now, Cagayan is still very much a dilapidated, isolated stretch of some of the most beautiful beaches in the world, hoping to turn sand into silicon will take more than just favorable laws.