I think of the Isle of Man as home of the TT motorbike race and a colder version of the Cayman Islands (low tax place).

That needs updating, because on Wednesday 26th March, the island’s Financial Supervision Commission confirmed that a bitcoin exchange that holds client funds with a licensed overseas payment service provider is not required to obtain a licence in the country for its activities.

The background is that the Isle of Man is a self-governing British Crown dependency. In other words, this tiny (£4m GDP) country makes its own laws. This is what enables Isle of Man to have a different tax jurisdiction from the UK.

For those Bitcoin entrepreneurs struggling with heavy-handed regulators, the idea of a jurisdiction where Bitcoin exchanges are not regulated seems like a gift. To those who lost money in Mt. Gox, this might sound like an invitation for scammers to set up shop in the Isle of Man. Most credible exchanges post Mt Gox welcome regulation.

There must be some nuance here. This article, from a firm on the Isle of Man, has the details. The key point is that anti-money laundering laws still apply.

The big picture is that the competition between jurisdictions to attract Bitcoin entrepreneurs is ramping up. We covered the story of cross border regulatory competition nearly 6 months ago. The key point is:

“ventures with a globally distributed team can choose their regulatory jurisdiction. Unlike a physically based business, the regulatory jurisdiction is not imposed upon them; it is an active decision.”

The real prize for a country like Isle of Man is not to be a nameplate offshore operation. It is to be the place where Bitcoin goes mainstream. It is a lot easier to do this in a small country where a large % of the population are Bitcoin enthusiasts. That maybe happening on Isle of Man because it has two big draws:

1. Low tax – resident individuals are taxed at 20% to a maximum of £120,000 per year, while businesses pay no corporate tax and there is no capital gains tax.

2. Good bandwidth and hosting options (a cool climate and sef-sufficiency in energy helps) and is due to be the first country to get 5G.

According to some sources, digital startups make up nearly 20% of GDP and there are 170 tech startups (of which 25 are digital currency related) in a population of only 85,000. In short, there are a lot of techies telling merchants to accept Bitcoin and telling regulators not to kill the golden goose.

This competition among regulators to attract Bitcoin entrepreneurs is a healthy sign. It shows that we are well past the days when a government or regulator can simply “close down Bitcoin”. That is now likely to be as effective as Mubarak closing down the Internet in Egypt.