(Bloomberg) -- Lithuania, which established itself as a hub for financial-technology startups over the past decade, will weed out many of the crypto companies operating there when it starts awarding licenses next year. 

While some 580 cryptoasset firms are registered in Lithuania, the number expected pass the hurdle for obtaining full permits will be “much lower,” said Simonas Krepsta, a central bank board member. The process is set to wrap up by June 2025 and unsuccessful applicants will “leave the ecosystem,” he said in an interview on Tuesday.

The Baltic nation’s push to establish itself as a center for innovative digital banks and payments companies — Revolut Ltd. got its banking license there — also triggered an influx of unregulated crypto firms. That makes Lithuania a potential flash point for local and European legislation that’s intended to help stop digital assets from being abused to launder money or swindle investors.

“The crypto industry failed in a lightly-regulated environment,” said Krepsta. “We have quite a lot of evidence of that in the US, other European countries but also Lithuania. We saw quite a number of failures, embezzlement cases and similar which were quite a blow for the industry.”

Lithuania’s efforts to tighten the reins on crypto mirror steps regulators have taken around the world over the past three years. Singapore, Hong Kong and Dubai are among financial centers that introduced comprehensive regulatory regimes for digital assets since 2021. 

Seven of the world’s largest crypto exchanges are already present in Lithuania, Krepsta said. Some of the digital-asset firms operating there are already licensed in other EU states, meaning they may not need authorization in Lithuania, he said.

The European Union’s first unified crypto legislation, known as Markets in Cryptoassets, is due to take effect starting in January 2025.

Read more: Shorthanded EU Regulator Risks Lagging on Crypto Rules 

Lithuania is also in the process of implementing its own legislation to govern crypto, including powers for the country’s Financial Intelligence Unit, an anti-money laundering watchdog, to terminate corporate registrations.

The central bank has been investing to ensure its staff understand the business models of crypto firms, said Krepsta. The central bank will start a pre-assessment procedure for licensing in July, six months before MiCA takes effect, he said.

“The crypto sector is entering the financial sector from next year,” said Krepsta. 

--With assistance from Aaron Eglitis.

©2024 Bloomberg L.P.