What Rishi Sunak as Prime Minister means for the UK crypto industry

British cryptocurrency firms and investors have high hopes that new Prime Minister Rishi Sunak can turn around Britain’s fading crypto ambitions.

The new British leader, who was Chancellor of the Exchequer in former Prime Minister Boris Johnson’s government, faces a daunting to-do list, which includes undoing the economic destruction of his predecessor Liz Truss. Crypto isn’t exactly high on his priority list, but industry insiders say there’s reason to be optimistic.

“The feeling among entrepreneurs is one of relief,” said Christian Faes, co-founder of digital lending startup LendInvest. “There is a sense that we finally have some sense in Number 10, after the arrogance and incompetence of Liz Truss and [ex-Finance Minister] Kwasi Kwarteng almost crashed the British economy.”

“Rishi sees the opportunity and potential that crypto has and wants the UK to be a leader in it,” added Faes, who also chairs the Fintech Founders network.

Sunak, a former Goldman Sachs analyst, has on several occasions expressed a positive attitude towards crypto. As the minister responsible for the UK’s finances, he outlined a grand plan to turn the country into a global crypto hub in April. That included bringing stablecoins within regulatory parameters and getting the Royal Mint, the official British mint, to launch a non-functional token.

At a drinks reception organized by venture capital firm Index Ventures in June, Sunak said he was “determined” to make the UK “the jurisdiction of choice for crypto and blockchain technology.”

But after weeks of political instability, crypto firms and investors are wondering what he will do to boost the market, which is licking its wounds after a few months of punishing digital asset prices and a series of corporate bankruptcies.

Prior to Sunak’s appointment as Prime Minister, confidence in the UK’s position in the global crypto market had waned.

In a survey of 300 UK fintech entrepreneurs, only 9% believe it is leading crypto. Almost 20% of founders believed that the regulator was “actively signaling” that the UK was not the place to start a crypto company, according to the Fintech Founders survey.

The Financial Conduct Authority has been criticized for being slow to approve licenses for crypto firms, a problem that has prompted several companies to wind up and set up shop elsewhere in Europe. Fintech app Revolut recently won a license for its crypto unit after a series of extensions to the deadline to complete approvals.

For its part, the FCA says that a high number of applicants have not met the standards to prevent money laundering.

“I think unfortunately this is another example of the UK acting very uncharacteristically disorganized,” Matteo Perruccio, international president of crypto-focused fund manager Wave Financial, told CNBC.

While Switzerland is an example of a country that has been “excellent” in attracting crypto exchange-traded products, or ETPs, among other products, Perruccio said.

Nevertheless, the UK is home to a fairly active crypto market. According to data from Chainalysis, $233 billion in digital assets changed hands from July 2021 to June 2022. However, it did not grow as much as Germany, where activity on the chain increased by 47% year-on-year.

As London looks to compete with EU financial hubs after Brexit, crypto could be a way to improve its chances, industry insiders say.

“It’s an opportunity to bring clarity to the industry and allow it to play its part in achieving their mandate to encourage businesses to invest, to innovate and create jobs in the UK,” said Jordan Wain, head of UK Public Policy by Chainalysis. told CNBC.

Sunak may seek to coordinate the efforts of various UK regulators to police crypto, something President Joe Biden has pushed for in the US

While the UK government has kept the door open to digital currencies, officials at independent regulators have taken a tougher tone against the sector.

Another way Sunak could boost crypto in the UK is by promoting the Bank of England’s work to explore a digital central bank currency.

In April 2021, Sunak’s finance department launched a joint working group with the central bank investigating the possibility of a token recognized as equivalent to the British pound. It has been called “Britcoin”, although it probably wouldn’t look like bitcoin, which is decentralized and volatile.

“We can now see an acceleration in the work being done on these proposals – one to watch over the next few months,” Varun Paul, director of market infrastructure at crypto software firm Fireblocks, told CNBC.

The Federal Reserve, the European Central Bank and other central banks are considering their own digital currencies. But China has the lead in the CBDC race, with a digital version of the yuan already being actively tested in a number of provinces.

More than anything, crypto investors want to see Sunak bring some clarity to the industry. In the US, the government issued a framework for crypto. And the EU has approved a comprehensive set of laws regulating the sector.

The UK has its Financial Services and Markets Bill, which aims to make the country’s financial sector more competitive after Brexit. It is currently going through parliamentary votes, but once passed, it will recognize crypto-assets as regulated products.

“One can expect that the road to regulatory clarity will be significantly shorter with [Sunak] at the helm,” Martin Hiesboeck, head of blockchain and crypto research at trading platform Uphold, said in an emailed comment.