What’s next for the UK’s crypto economy?

of Simon JenningsCEO of the UK Cryptoasset Business Council

The UK’s crypto economy is on the brink of major change. Reports emanating from HM Treasury indicate that the regulatory perimeter of cryptoassets will begin a reform process later this year. But exactly what form this will take remains to be seen.

In April, the then chancellor announced his ambition to “making the UK a global hub for crypto-asset technology and investment”. This was met with a wave of enthusiasm throughout the global crypto economy.

However, this ambition was announced against a different social, economic and political backdrop.

Fast forward to now and we live in different times – not least with a new prime minister and ministerial team.

So, what does this mean for the future of our crypto economy?

The early signs are positive. With Richard Fuller MP, a current Chancellor of the Exchequer confirming Britain’s desire to be “dominant global hub for crypto technologies (…) to become the country of choice for those looking to create, innovate and build in the crypto space”.

In addition, progress in the recently introduced bill on financial services and markets is encouraging. The bill would establish a stablecoin regime and enable the use of a wider set of payment methods in the UK.

But political ambition and platitudes alone will not get us where we need to be. But without a clear policy path, today’s operational realities will remain the same. We need concrete results – a measured regulatory framework that balances innovation, market integrity and consumer protection. With data out in July commissioned by HMRC showing that 10% of UK adults have held crypto assets – up from 5.7% in January 2021, can we afford to be wrong?

Trussnomics

From the very start of her premiership, Prime Minister Liz Truss confirmed that she would do so “enable the city to drive economic growth” through tax cuts and regulatory reform as part of her efforts to maintain a competitive edge and “additional growth and investment”. This clear focus, combined with the chancellor’s promise of ‘Big Bang 2’ for the city, is a positive signal.

Crypto assets can play a leading role in this vision and help achieve these goals. However, it is important that this administration embraces a “technology” and “digital first” approach to policymaking. Rather than viewing cryptoassets as a threat to the existing ecosystem, they should be viewed through the lens of a tool to augment and revolutionize existing and embedded technologies to create new opportunities that can liberate the City of London.

Truss may be closer to supporting crypto assets than you think. Back in 2018, she tweeted: “We should welcome cryptocurrencies in a way that doesn’t limit their potential” and put her name to a report, overseen by Sir Iain Duncan Smith MP which is calling for accelerated plans for a digital pound.

The industry can also take much comfort from Truss’s recent appointments to her top team within Number 10. She has unabashedly hired staff who cut their teeth in centre-right-leaning think tanks.

Chief among them, Ruth Porter, assistant chief of staff, who worked first at the Free Market Institute for Economic Affairs and then at Policy Exchange. Policy Exchange has historically been a crypto sympathizer, urging politicians in 2018 not to write off the sector. Or Matthew Sinclair, Chief Economic Advisor, at No.10 policy unit who has been appointed right from leading on “digital economy” at the consulting firm Deloitte. And with him will be Shabbir Merali, who has advised Truss on economics since her days as chief secretary to the Treasury. A former Whitehall adviser says he is rated by the Chancellor of the Exchequer’s mandarins and takes a keen interest in technology policy and its interaction with economic growth and productivity.

HM Treasury shake-up

Rhetoric is already beginning to translate into action. Andrew Griffith MP, Financial Secretary to the Treasury (FST) will take over the City Minister’s mandate from the Chancellor of the Exchequer (EST) and take responsibility for financial services, including crypto-assets. Griffith is a slick operator and remarkably pro-business, having sat on the board of Sky for over ten years and then been appointed Chief Business Advisor to the Prime Minister. We can expect a measured approach to policy-making and one that includes the backbenchers, given his previous role as Minister for Policy and Head of the Prime Minister’s Policy Unit.

No time like the present

While the likes of Switzerland, France and Dubai have regulated in favor of crypto assets, the UK has remained silent. The UK has no home-grown unicorns in the crypto-asset space. Even Austria, which has a fraction of our GDP, has one. We had one, which was recently valued at £12 billion, but they left the UK because of the perceived hostile regulatory environment.

If the UK is not careful, we will lose out in the global technology race. There is one technology company in the FTSE. We must incubate and attract tomorrow’s companies. The wider sector trends in the UK are worrying.

Currently, the flow of venture capital invested in London’s crypto-asset firms is going in the wrong direction, with companies reporting an almost 70% reduction in venture capital deals between 2021-2022. Meanwhile, global deals more than doubled to £4.08 billion.

Get this right and crypto-assets will play a game-changing role in helping the UK thrive in a post-Brexit landscape – and help kick-start a wave of digital innovation and a future-proof job market. When you consider that global investment in the crypto and blockchain sector rose to more than £25 billion in 2021, up from £4.6 billion in 2020, it’s clear that this is an opportunity the UK cannot miss.

The saying ‘change is inevitable, growth is optional‘ couldn’t ring more true. Financial services as we know them are evolving. The opportunity for the UK to be at the forefront of this change and become the global center of the crypto economy cannot be overstated. It must be grasped with both hands.