Crypto mining business models: Points of contact to the AIFMD

This paper provides a technical overview and legal analysis of the activity of miners in proof of work-based crypto assets, focusing on the Bitcoin Blockchain as the most prominent example. The result of this analysis — mainly that mining is a financial service similar to the services performed by traditional financial intermediaries — is used as the foundation of a detailed legal analysis of a widespread crypto mining business model under the Alternative Investment Fund Managers Directive (AIFMD). The paper shows that such business models offer mining packages directly to retail investors via the Internet, and the operators of these so-called mining farms thereby raise capital from the public to generate a pooled return for investors in the form of ‘mined’ crypto assets, for example, Bitcoin (‘BTC’). A detailed analysis of this fund-like structure leads to the conclusion that many currently operating crypto mining business models are already regulated by the AIFMD if all the relevant criteria of the AIFMD are fulfilled. This legal assessment has to be made on a case-by-case basis and entails serious consequences — depending on the national transposition of the AIFMD, it can even result in the prohibition of marketing units and shares of such AIFs to retail investors, as is the case in Austria. Operators of such business models that are already active on the market and that fall under the regulation of the AIFMD would be faced with registration or authorisation requirements and potential legal repercussions for operating an AIF without licence.