Mount Pelion Capital is one of the first crypto-focused hedge funds in Cyprus with CySEC approval. What does a crypto fund mean in very practical terms and what inspired you to launch this groundbreaking venture in Cyprus?

A crypto fund like ours is an investment vehicle that pools capital to invest in digital assets like Bitcoin and Ethereum with the goal to generate risk-adjusted returns through active management of these assets. Mount Pelion Capital serves as a bridge between traditional finance and the digital asset world by offering well-informed and professional investors regulated access to the opportunities within the cryptocurrency market. Our establishment in Cyprus is a deliberate effort to benefit from the encouraging regulatory conditions, strategic location, and the potential to inspire broader acceptance of digital assets within the local financial community.

My journey into the cryptocurrency space began in 2013 while I was studying economics at university. I was reading about monetary theory and stumbled across this peer-to-peer electronic money named Bitcoin, which immediately captured my attention and soon led to my first personal investment. In 2016, I also invested in Ethereum, and ever since I have continued to follow my fascination with anything blockchain-related. When I moved from Germany to Cyprus during the Covid lockdown in late 2020, an opportunity opened to establish an alternative investment fund that could provide a regulated avenue for investors seeking exposure to this emerging market. That is how Mount Pelion Capital was founded.

Establishing the fund in Cyprus was a strategic decision influenced by several factors. Cyprus offers a more accessible and communicative regulatory framework through the Cyprus Securities and Exchange Commission (CySEC), especially in comparison to the complex and costly regulatory processes that I know from my home country Germany. Situated at the crossroads of Europe and Asia, Cyprus provides access to both worlds. In practice, this allows us to get exposure to the forward-thinking approach to crypto in places like the UAE while adhering to European Union regulations. The University of Nicosia in Cyprus is a great example of the country’s progressive stance on digital assets. It has been offering courses in blockchain technology since 2013. Unfortunately, local banks have been slower to embrace the sector. By launching a crypto fund, we would like to encourage financial institutions in Cyprus to engage more openly with digital assets, highlight their benefits and foster a more inclusive financial ecosystem on the island.

What challenges did you face in securing CySEC approval, and how did you navigate them? What does this milestone mean for the crypto industry in Cyprus and how do you envision it shaping the local financial ecosystem?

Securing approval from the CySEC presented several challenges, particularly due to the stringent regulatory requirements and the evolving nature of the crypto industry. One significant challenge was meeting CySEC’s high regulatory expectations. We were required to appoint a full-time Anti-Money Laundering (AML) compliance officer in-house and needed to ensure a robust board composition with experienced non-executive directors.

Another issue the CySEC put special emphasis on was compliance with the so-called Travel Rule, meaning that as a company processing crypto payments, we are required to collect, verify and share specific transaction information with our counterparties about who is sending and receiving the payment. The regulations prohibit the inclusion of privacy coins in our investment strategy, which meant we had to take the right measures to avoid exposure to these coins. However, since they do not play a significant role in our strategy, this did not pose a significant challenge.

Another hurdle involved banking relationships. CySEC required us to maintain accounts with credit institutions within the European Economic Area (EEA). Generally, banking services for crypto-related entities are very limited. Luckily, we managed to onboard with one of the most renowned and reliable banks in Europe when it comes to crypto, Bank Frick from Liechtenstein, which helped us overcome this hurdle as well. 

You have advocated for a more balanced stance on crypto in Cyprus. What specific policies or regulatory approaches would you like to see implemented, and why do you believe they would benefit the country?

Cyprus has long established itself as a significant hub for forex companies and Contract for Differences (CFD) brokers, attracting international players like eToro or Plus500. They have both leveraged Cyprus’ favourable regulatory environment and strategic location to thrive. There is immense potential for Cyprus to become a leading hub for the cryptocurrency industry as well. By applying similar regulatory and infrastructural strategies to the crypto sector, Cyprus can diversify its financial services sector and position itself at the forefront of digital finance.

A balanced regulatory stance on cryptocurrency is essential to achieve this. Clear and comprehensive regulations tailored to digital assets, such as the new Markets in Crypto-Assets Regulation (MiCA), should provide legal certainty for businesses and investors. Encouraging local banks and financial institutions to engage more openly with crypto-related businesses is equally important. At present, one of the biggest hurdles for crypto entities in Cyprus is gaining access to traditional banking services. One positive example to mention is Revolut, a major digital banking platform, that chose Cyprus as its European crypto-operations base. 

Investing in education is another critical factor. As mentioned previously, the University of Nicosia has been offering blockchain-related degrees since 2013 and sets a strong precedent for promoting blockchain literacy. Expanding similar initiatives would empower more individuals and businesses to adopt and innovate in this space. 

Implementing supportive tax policies for crypto activities would attract global talent and investment. Much like the competitive corporate tax rates that have helped position Cyprus as a key forex hub, clear and favourable tax guidelines for digital assets would make the country an attractive destination for crypto ventures. Beyond diversifying the financial services sector, it would create new economic opportunities, job growth, and enhance Cyprus’ reputation as a forward-thinking financial hub.

Smaller European nations like Liechtenstein, Malta, and Gibraltar are often cited as crypto-friendly jurisdictions. What lessons can Cyprus learn from their regulatory frameworks?

Smaller European jurisdictions like Liechtenstein, Malta, and Gibraltar offer valuable regulatory lessons for Cyprus in fostering a crypto-friendly environment. Liechtenstein, while not an EU member, is part of the EEA, which allows it to participate in the EU’s single market. In 2020, Liechtenstein introduced the Token and Trusted Technology Service Provider Act, commonly known as the Blockchain Act. This legislation provides a comprehensive legal framework that regulates the entire lifecycle of digital assets, ensures legal clarity and promotes innovation while maintaining consumer protection. Cyprus can draw inspiration from Liechtenstein’s approach by developing regulations that offer clear guidelines for businesses and investors in the crypto space.

Malta's Virtual Financial Assets Act and its dedicated Malta Digital Innovation Authority have positioned it as a ‘Blockchain Island’, attracting major crypto firms such as one of the largest cryptocurrency exchanges in the world, OKX. As a fellow EU member, Cyprus could establish specialised institutions to oversee blockchain innovation and attract investment. 

Gibraltar implemented the Financial Services (Distributed Ledger Technology or DLT Providers) Regulations in January 2018, becoming one of the first jurisdictions to introduce legislation specifically catering to blockchain technology. It emphasises collaboration between regulators and industry, creating a secure yet adaptable environment for blockchain companies – an approach Cyprus could replicate through establishing collaborative channels, promoting transparency and mutual understanding between the government, regulators, and the crypto industry.

 By aligning with EU standards, particularly the MiCA regulation which introduces a harmonised framework for crypto assets across member states, Cyprus can develop a balanced framework that promotes innovation, attracts investment, and ensures consumer protection in the crypto space.

What advantages does Cyprus offer for a crypto hedge fund compared to other jurisdictions? How can the country further enhance its appeal to digital asset investors and innovators?

Cyprus offers a range of advantages for alternative investment funds like ours. Strategically located at the crossroads of Europe and Asia, Cyprus provides access to multiple markets while benefiting from its membership in the European Union. This grants crypto funds operating in Cyprus the ability to comply with EU regulations, which generally enhances investor trust and confidence. In addition, Cyprus offers a cost-effective business environment. Operating costs are generally lower compared to other EU jurisdictions, and the country provides a skilled workforce and modern infrastructure. The tax regime is another significant draw, with exemptions on capital gains tax for securities sales and tax-free dividends that enhance net returns for both investors and managers.

However, in order to increase its appeal to digital asset investors and innovators, Cyprus should refine its regulatory approach. We can speak from our experience of how CySEC manages compliance requirements for smaller funds like ours. While the rigorous oversight by CySEC is laudable and ensures integrity in the financial system, the AML compliance requirements applied to smaller funds seem to be aligned with those of forex companies, despite the fundamental differences in their client bases and operations.

For example, during our own approval process, CySEC required detailed clarifications, including whether the fund would employ the Travel Rule, and made engagement with a depositary from the outset mandatory, even though the fund does not rely on mass-market operations. Our fund is boutique in nature, catering exclusively to well-informed and professional investors, and has robust internal due diligence processes to verify and onboard clients. While we complied by appointing a depositary as requested and provided the relevant agreements, such requirements could be tailored more proportionately to reflect the nature of smaller businesses – after all, we are working exclusively with European banks and exchanges that already adhere to stringent AML and compliance standards.

In what ways do you believe the financial services industry in Cyprus could benefit from embracing digital assets? Could you share any specific areas of growth or innovation you foresee?

The financial services industry in Cyprus has a lot to gain from embracing digital assets, as it can open up new opportunities for growth, attract international investment, and modernise how financial institutions operate. Digital assets are no longer a niche – investors are increasingly interested in them, and by integrating these into their offerings, financial services companies can appeal to a broader range of clients. One key area of growth is in investment platforms. By offering digital assets alongside traditional financial products, companies can give investors more choices and help them diversify their portfolios.

Another big opportunity lies in using blockchain technology to make financial services more efficient. For example, cross-border payments and transactions could become faster and cheaper with blockchain. Instead of taking days to settle a payment, blockchain allows these processes to happen almost instantly. This can save money for financial institutions and provide a better experience for their customers.

By embracing digital assets, Cyprus can position itself as a leader in financial innovation. This could bring in more international companies and skilled professionals to the country, which would in turn boost its economy. The government has already shown interest in blockchain and digital assets through supportive regulations and pilot projects, and building on this momentum could turn Cyprus into a major hub for new financial technologies. In short, digital assets can help Cyprus modernise its financial sector, attract new investments, and create a reputation as a forward-thinking country. This is not just about keeping up with trends – it’s about staying competitive in a rapidly changing world.

Beyond financial services, how do you see the adoption of digital assets influencing other sectors of the Cypriot economy?

The adoption of digital assets in Cyprus has the potential to transform various sectors of the economy beyond financial services. In real estate, for instance, blockchain technology could simplify property transactions by automating processes such as title transfers through smart contracts. This would reduce paperwork, speed up transactions, and ensure transparency, which could make the entire system more efficient and trustworthy. Dubai serves as a leading example: in October 2017, the Dubai Land Department adopted blockchain technology to facilitate real estate transactions.

In supply chain management, blockchain could be used to track goods from their origin to the consumer. This technology would help ensure the authenticity and quality of products, which is especially important in industries like pharmaceuticals or luxury goods, where trust in the supply chain is critical. Companies such as IBM and Walmart have successfully used blockchain to enhance transparency and efficiency in their supply chains, ensuring product authenticity and reducing fraud. 

Education could benefit as well. Universities and institutions could issue diplomas and certificates as digital tokens on the blockchain, making it simple for employers and other organisations to verify credentials. This would reduce the risk of fraud and streamline the hiring process. The European Blockchain Services Infrastructure (EBSI), a joint initiative founded by the European Commission and member states, is a pan-European blockchain designed specifically for cross-border public services. It has initiated projects to develop blockchain-based systems for verifying educational credentials to reduce administrative burdens and minimise potential fraud.

How do you address concerns around the volatility and risk often associated with cryptocurrencies to build trust among your investors? How do you ensure that your fund adheres to regulatory compliance while also remaining innovative and competitive?

At Mount Pelion Capital, we recognise the inherent volatility and risks that are generally associated with cryptocurrencies. With this in mind, we have implemented comprehensive strategies that focus on robust risk management, transparent communication, and strict regulatory compliance, while maintaining the flexibility to adapt to market conditions.

To address market volatility, we employ diversification across a carefully selected portfolio of digital assets. Our macro-framework approach allows us to adjust portfolio composition based on the prevailing market environment – whether bullish or bearish. For example, in a bull market, we focus on growth opportunities across segments like Smart Chains, Decentralized Finance (DeFi), and Metaverse, while maintaining exposure to Store of Value assets such as Bitcoin. In a bear market, we prioritise capital preservation by increasing cash allocations, reducing risk exposure, and maintaining a focus on assets with lower volatility. Thanks to this strategy, we can not only mitigate potential losses, but also benefit from opportunities for risk-adjusted returns. In addition to diversification, we deploy hedging strategies to protect against significant market downturns and focus on safeguarding our investors’ capital.

On the regulatory front, we adhere to all relevant guidelines set forth by CySEC. This includes maintaining transparent reporting practices, following stringent AML procedures, and ensuring that our operations meet the highest standards of integrity and accountability. Our open communication with the regulator allows us to stay informed about changing regulations and to proactively adjust our practices to remain compliant. Through these measures, Mount Pelion Capital strives to provide a secure and trustworthy investment environment that allows us to focus on what really matters: protecting our investors’ interests and delivering sustainable, risk-adjusted returns.

What are Mount Pelion Capital’s immediate goals and strategies to stay at the forefront of the crypto hedge fund industry? Are there any partnerships, new funds, or initiatives on the horizon?

Our immediate goals focus on expanding our reach, refining our investment strategies, and strengthening partnerships. Our strategy is rooted in tried and tested principles: identifying digital assets and blockchain projects with strong fundamentals, robust use cases, and experienced teams behind these projects that will drive their long-term growth.

One key component of our strategy is forming partnerships with other asset managers and algorithmic traders who have demonstrated consistent success and proven track records. Such collaborations allow us to share expertise, improve our trading algorithms, and provide market insights that complements our own research and investment capabilities.

Besides active trading and portfolio management, we are exploring venture capital investments. Our goal is to identify early-stage blockchain projects that show significant potential for growth and innovation, particularly in areas such as DeFi, Web3 infrastructure, and Metaverse. By investing in these projects at an early stage, we not only diversify our portfolio but also position ourselves to capture value from the next wave of blockchain-driven innovation. 

As regulatory attitudes toward crypto vary across the globe, where do you see Cyprus positioned in the next five years in the global crypto landscape? And as pioneers in this space within Cyprus, what advice would you offer to other financial institutions or startups looking to explore opportunities in the crypto and digital assets market?

Cyprus is at an important crossroads in the global crypto landscape. With new EU regulations like MiCA now in effect, the country has a unique opportunity. It can either follow along with the standard EU approach or take bold steps to become a leader in innovation and regulation for the crypto industry. Cyprus has all the right ingredients – a strategic location, a growing financial sector, a highly qualified workforce, and a forward-thinking regulator – to stand out as a key player in this space.

For financial institutions and startups looking to enter the crypto market, my advice would be to think beyond the quick and easy solutions. While offshore jurisdictions might seem appealing because of their relaxed rules, they do not always build the kind of trust and credibility that investors and business partners value. Instead, consider Cyprus. It offers a balance: the cost advantages of a smaller market combined with the security and transparency of meeting EU standards. By going the extra mile to comply with EU regulations, businesses set themselves up for long-term success while gaining access to a massive and highly regulated market.

Cyprus has a chance to position itself as a hub for crypto innovation in the next five years. By creating a stable and welcoming environment for businesses that want to work within EU frameworks, it can attract serious investors and entrepreneurs who are looking for a trustworthy place to grow. This mix of innovation, compliance, and affordability makes Cyprus a smart choice for anyone looking to make their mark in the digital asset world.