Is France a good place for crypto business?

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TL;DR France has been touted as a crypto-friendly country lately: with a crypto-specific legislation and a Minister of Economy who likes to speak about supporting the blockchain industry, it has attracted such giants as Binance and Crypto.com, which have chosen Paris as their European HQ and brought along their investment funds totaling €250 million.

France is home to half a dozen world-famous crypto companies, and its NFT scene is developing fast.

However, it’s not all sunshine and roses: most French banks still refuse to service crypto companies and the upcoming MiCA and TRF regulations will put (even heavier) bureaucratic burdens on companies, while giving more opportunities to banks. Moreover, the government’s position is about pushing crypto into custodian channels, which is contrary to crypto’s very purpose.

We analysed the current – and the upcoming – crypto environment in France from different standpoints: legal framework, access to bank services, government attitude and the existing crypto industry, in order to see if France is really a good place for crypto companies.

Legal framework

France was among the first countries in Europe to create a specific legal framework for crypto with the PACTE law from 2018, which:

·         defined the notions of a cryptocurrency and a token,

·         introduced the status of Digital Asset Service Provider (PSAN),  

·         established optional visas from the Financial Markets Authority (AMF),

·         set up 30% flat tax for capital gains in crypto for non-professionals,

·         called the banks to create “objective, non-discriminatory and proportional rules” for servicing PSAN.

A parallel EU legislative agreement was also reached on AML with the Transfer of Funds Regulation, which will enter in force at the same time as MiCA and will:

·         oblige crypto service providers to collect sender/beneficiary data and verify its accuracy,

·         including transfers to/from non-custodial wallets,

·         for all transfers from the first euro sent.

While the PACTE law did bring some clarity and legality to the French crypto industry, the upcoming regulations will put additional bureaucratic burdens on crypto companies and force “legal” crypto into the existing fiat money channels. However, we believe that data collection and reporting associated with fiat AML is both ineffective and dangerous.

Ineffective because crypto by nature does not need any intermediaries, and money launderers who decide to use crypto (bad idea, btw) won’t use custodians.

Dangerous because blockchain is transparent, and in case any data linking a crypto address with a big balance to a real person is leaked (which happens regularly to any centralized data storage), this person could be at physical danger.

Banking crypto businesses

 French banking sector is a very conservative one: for decades most of the country has been serviced by one of 5 groups: BNP Paribas, Crédit Agricole, Société Générale, BPCE or Crédit Mutuel.

Some of these banks still don’t want to touch crypto with a ten-foot pole, others timidly try to ride the hype for marketing purposes (like BNP Paribas with its metaverse projects), and Société Générale went as far as obtaining last month an AMF visa, allowing it to propose crypto-related services.

They have one thing in common though: none of these banks is willing to service French crypto businesses (read more about banks’ crypto-related hypocrisy here). Numerous testimonies confirm their repeated refusals to open accounts or the closures of the existing ones, including for companies with AMF visas. A special provision in the PACTE law did absolutely nothing to change that.

In 2020, ADAN, the French association dedicated to promoting crypto, has even set up a special working group with the ACPR (agency supervising banks) and the FBF (Federation of French Banks) to address this problem – only to end up in 2021 with a conclusion that the FBF refused to sign.

So far no amount of public outrage can make big French banks change their attitude. This pushed its crypto businesses to look for banks across the border (Caen’s Bitcoin Avenue, for example, has turned to a Luxembourg’s neobank after having been unbanked by Crédit Mutuel), but this solution has its downsides for retail French clients, which may see their wires to such banks blocked.

This year a new trend is emerging: a few small banks and neobanks, which previously lead the same anti-crypto policy, and starting to turn around. Neobank Qonto, which was closing crypto firms’ account last year, has signed a deal with Coinhouse, a Parisian crypto company, to allow its clients buy and sell crypto. Then a small family bank Delubac has declared that they are ready to service crypto companies.

We believe that this trend is a good thing for both French crypto businesses and its banking sector, which may finally see some diversification.

Government support

French Minister of Economy Bruno Le Maire has been giving controversial signals to the crypto industry: one the one hand, he was eager to personally welcome Binance to Paris (its €100 million French ecosystem fund was a good door-opener), on the other hand, he has been a long-time supporter of the utterly nonsensical standpoint “Blockchain, not Bitcoin”.

When it became clear that “private blockchains”, on which a lot of the above nonsense was based, were indeed an absurd notion, the narrative changed to “Crypto, not Bitcoin”.

In an interview given on October 17, Bruno Le Maire announced the ambitions to “make the EU a number one world economic zone in the matter of structuring and organizing the cryptoassets market”. And within the EU, France should become a “European hub of cryptoassets ecosystem”.

At the same time, he warned against the dangers of “idolatry of a world without state, without central bank, without borders and, finally, without money”. Such idolatry would, according to the Minister, entail endangering the sovereignty and “the most fragile among us” (he probably meant the central bankers). This once again confirmed his vision of “custodial crypto” – an asset locked within centralized firms that control it as any bank would control a euro deposit. But… wouldn’t it defy the very reason cryptoassets were created?

Despite all intrinsic inconsistencies of Mr Le Maires’ declarations, one statement did stand out in a positive way: “Cryptocurrencies don’t have the same nature as stocks: they do not represent ownership of a company”. In the context of a rising incomprehension across the pond (the American SEC still haven’t given a clear answer what crypto it considers securities), this position does look reassuring for the markets.

French crypto industry: tech and creativity

EU Blockchain Observatory, an initiative sponsored by the European Commission, has recently issued a report that counted 160+ “blockchain startups” in France. This is not much comparing to a small Switzerland, which is home to 877 crypto companies, but it is true that several eminent crypto companies were indeed made in France: Ledger (unicorn hardware wallets manufacturer), iExec (decentralized computing), Acinq (Lightning Network software developer) and Tezos (blockchain with developer labs in France and the foundation in Switzerland).

The report forgets to add Sorare (NFT football unicorn) and The Sandbox (Paris-based open metaverse company belonging to the Hong-Kong Animoca Brands) and mentions already non-existent or very small companies, so we won’t get too excited about its relevance. However, the scale looks right.

Among the French crypto companies there are almost no financial or DeFi firms due to the heavy bureaucratic burden and the notorious lack of banking services (founded as early as 2011, the French Paymium was one of the first crypto exchanges in the world, but it failed to scale and is now almost invisible comparing to others).

However, France has got a lot of IT and math talent, which allows for interesting tech developments.

Another skill the French are known for is creativity, and in the crypto space creativity is often expressed via NFTs. A remarkable initiative called NFT Factory was launched this year to develop the French NFT scene via conferences (here’s our report from their last one in July), collaborations, and most recently – a physical space in the center of Paris.

Future of crypto in France

NFTs are notoriously absent from the existing and upcoming regulations, and we believe this could be beneficial for the development of the related ventures. Combined with the creative sector the French are famous for – art, fashion, and gaming – this could help France (and Paris in particular) develop a thriving NFT scene.

As to the financial sector of the crypto industry, we believe that only companies that are able to sustain big compliance departments will be able to make it in France. Binance and Crypto.com of course, but also the existing French banks, which were given a head start notably in the matter of stablecoin issuance.

Finally, non-custodial part of crypto, like DeFi, could have a hard time justifying its activity to the increasingly intrusive government (such companies should avoid the whole of the EU).