Bitcoin is knocking on 10 Downing Street
Ready for change
There is a one-in-three chance that Britain’s next prime minister will be an ardent supporter of bitcoin and cryptocurrency, following news that former Chancellor of the Exchequer Rishi Sunak has secured his place in the final showdown to replace Boris Johnson.
Betting website oddschecker.com gives Sunak a 15/8 chance of securing the top job in British politics, reflecting an implied probability of 35%. That compares with odds of 11/21 (67%) for his rival Liz Truss, the incumbent foreign secretary.
Sunak has so far avoided mentioning cryptocurrency during his two-week-old campaign, focusing instead on a self-proclaimed (albeit widely disputed) track record of fiscal responsibility.
However, the fact remains that he is by far the most senior politician in British history to have voiced support for cryptocurrency while in office.
“It is my ambition to make the UK a global hub for cryptoasset technology,” Sunak said in an official statement from the Treasury on April 4.th.
“We want to see tomorrow’s businesses – and the jobs they create – here in the UK, and by regulating effectively we can give them the confidence they need to think and invest long term.”
His ally in this short-lived campaign was John Glen, the then economic secretary of the Treasury, who stated the duo’s fondness for cryptocurrencies in a speech to the Innovate Finance Global Summit during Fintech Week 2022.
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In the end, the two men didn’t have much of a chance to flesh out their vision for the UK crypto sector; both resigned from Johnson’s government on 6 Julythand paves the way for Sunak to launch his long-awaited leadership bid.
Nevertheless, their initial focus on regulating stablecoins has already borne fruit in the Financial Services and Markets Bill, a piece of legislation currently under second reading in the House of Commons. That bill makes it possible for stablecoins like USDT and USDC — called “digital settlements” — to be used as legitimate, fully regulated means of payment.
Starting with stablecoins and NFTs
Dollar-pegged stablecoins use blockchain encryption (a way to make data immutable) and Distributed Ledger Technology (DLT, a decentralized way to share data) to deliver faster and more secure financial settlements than traditional payment channels. The benefits of these technologies are widely recognized. However, because they involve the use of digital tokens as proxies for underlying currencies, they are only as trustworthy as the companies that issue those tokens.
The recent failure of the algorithmic stablecoin UST – a protocol that used programming code (rather than physical cash reserves) to defend the value of its tokens – underscored the need for regulation if this corner of the cryptosphere is to gain mainstream acceptance.
Sunak also appears to be keen on Non-Fungible Tokens (NFT), having instructed the Royal Mint, the Treasury’s currency maker, to start issuing these digital assets on behalf of the government.
NFTs use the same blockchain and DLT technology as stablecoins, but they leverage it to create non-fungible – or non-fungible – tokens that can be stored and traded as unique collectibles.
Last year, meanwhile, Sunak played down speculation that he planned to launch a central bank digital currency (CBDC) called Britcoin. CBDCs are being hailed by some as the future of government-issued money: fully digital versions of traditional fiat currencies that can be paid directly from central banks to consumers’ pockets. However, they are treated with suspicion by many crypto-enthusiasts, as they do not need to exist on either a blockchain or a DLT protocol.
To date, Sunak has avoided making public comments about bitcoin – the largest, most valuable and most decentralized cryptocurrency. That’s no surprise: its basic purpose is to provide citizens with an alternative to government-issued money.
Nonetheless, if crypto-friendly Switzerland is anything to go by, the creation of a legal framework for stablecoins and NFTs will inevitably spur wider adoption of blockchain and DLT technologies throughout the UK economy. And excluding bitcoin simply wouldn’t be compatible with Sunak’s stated aim of luring major players in the global crypto ecosystem – exchanges, digital asset banks, stablecoin issuers and so on – to set up in the UK.
With or without his input, it’s clear that UK regulators have already backed away from this new crypto frontier.
The Financial Conduct Authority (FCA), the UK’s financial watchdog, recently established a new department focused solely on digital asset compliance – after spending years trying to fend off Britons from what it described as a flash-in-the-pan scam.
A not-so-democratic path to office
Unfortunately for Sunak – whose popularity was (and, to a lesser extent, probably still is) significantly higher than Truss’s – the public will have no say in which candidate succeeds Johnson, who is stepping down after a series of scandals marred his premiership. .
That’s because Britain’s parliamentary electoral system only allows citizens to vote for local political representatives, while giving their affiliated parties full discretion when choosing a figurehead.
Members of the ruling Conservative Party will therefore cast their vote in September, after several weeks of lobbying by the two hopefuls.
And while bitcoin is unlikely to get a nod from either candidate, both Sunak and Truss have placed economic policy at the heart of their campaigns – bearing in mind Britain’s cost-of-living crisis, which has seen annual inflation hit a 40-year high of 9.4 %. Truss has sought to blame Sunak for that crisis, with aides criticizing the former finance minister’s failure to stop the Bank of England, Britain’s central bank, ramping up money printing during the pandemic.
Sunak rejects that charge, arguing that Truss’ plan to cut taxes will only worsen inflation while increasing the national debt.
Whoever wins the top job must convince the public they deserve the role by the end of 2024 – the latest date the Conservatives can call a general election under the current parliament.
