Two years ago, Prime Minister Rishi Sunak – then serving as Boris Johnson’s chancellor – declared it was his “ambition to make the UK a global hub for cryptoasset technology”.
Sunak, speaking along with John Glen – then the economic secretary to the Treasury, now paymaster general – at the Innovate Finance Global Summit in April 2022 said that “the measures we’ve outlined today will help to ensure firms can invest, innovate and scale up in this country.”
Glen conceded that the government’s goal was “not going to happen overnight”.
But now, two years later, what progress has the UK made towards becoming a global hub for cryptoasset technology?
Go ape
April 2022 was an interesting time for crypto. The historic heights of 2021 were cooling off but the world was still a few months away from a string of disasters that would bring the entire industry into question.
Terra, once the third most valuable crypto ecosystem and its associated coins Luna and UST, plummeted in value in May 2022. Six months later, the collapse of crypto exchange FTX rocked the industry.
Before those events, there was plenty of crypto optimism. Blockchain startups had no issues raising cash and many people were convinced that trading digital pictures of apes was a normal and sustainable way to get rich.
Royal NFTs
Sunak’s cryptoasset speech came with a handful of policy announcements aimed at supporting his goal.
Among those policies was a plan to produce a UK government non-fungible token (NFT) via the Royal Mint. NFTs were a hot topic at the time, attracting speculative investments from consumers, institutions and celebrities.
The British NFT never materialised, with the project being officially scrapped last March, less than a year after it was announced.
The chair of the Treasury Select Committee said at the time of cancellation that “we have not yet seen a lot of evidence that our constituents should be putting their money in these speculative tokens unless they are prepared to lose all their money”.
Digital pound
Alongside the NFT, Sunak announced at the Innovate Finance Summit plans to consult on a Bank of England-operated stablecoin. The long-term goal was to pave the way for stablecoins to be used in the UK as a “recognised form of payment”.
That hasn’t yet happened. However, progress on a British central bank digital currency (CBDC) has been greater than the scrapped Royal Mint NFT.
There’s still no guarantee there will ever be a UK CBDC, though the authorities involved insisted in early 2023 that it is still “likely”.
In November, the Bank of England and the Financial Conduct Authority (FCA) published a joint proposal of how a sterling-backed stable coin would be regulated.
Among the proposed rules was a requirement for wallet providers to always allow withdrawals of the currency at the value of the pound and the requirement for issuers of the coin to back it with deposits at the Bank of England and not commercial banks.
The government also confirmed privacy protections for the currency would be legislated.
That’s about as far as the digital pound has come so far, with responses to the latest paper being collected earlier this year.
So, of the specific crypto plans announced two years ago, one was scrapped and the other remains in consultation limbo.
One could argue, however, that Sunak’s speech was less about actionable policy and more about establishing intent to allow the technology to thrive in the UK.
Crypto regulatory framework
The issue of regulation, or lack thereof, was among the biggest barriers at the time of the speech. The same month Sunak called for the establishment of a UK cryptoasset hub, the FCA’s chief executive, Nikhil Rathi, issued in no uncertain terms a warning to consumers.
“As we have consistently warned, if you invest in crypto, you need to be prepared to lose all your money.”
Rathi has never been bullish on crypto and has repeatedly called for government action to bring cryptoasset activities into the scope of the FCA.
There has been some movement, though perhaps not enough to satisfy regulators’ concerns.
Last June, the FCA implemented a crackdown on crypto marketing, forcing promoters of digital currency investments to put clear risk warnings in place.
Four months later, the Treasury confirmed it would go ahead with a policy requiring crypto firms to be authorised by the FCA, though the timeline of this coming into full effect remains unclear.
Regulatory changes have yet to instil any great shifts in the UK crypto industry, though several major banks including Chase UK and Starling have banned crypto transactions altogether amid fears of financial crime.
There was, however, a boost for crypto advocates last month, when the FCA updated its position on crypto investments.
The financial watchdog said that it would “not object to requests” to list crypto-backed Exchange Traded Notes on UK public markets.
The decision, which followed US approval of Bitcoin Exchange Traded Notes (ETFs), was credited with helping to boost the price of the world’s largest cryptocurrency, currently worth over £50,000 – even more than its peak value in 2021.
Cautious optimism
So, is the UK a global hub for cryptoasset technology? Or is Sunak’s dream dead? There has been slow or no progress on key policies and measures outlined two years ago.
The former economic secretary to the Treasury was correct in saying that the plan was not going to happen overnight. Nor would it happen over 731 nights more.
Despite the setbacks, the UK’s blockchain trade association, CryptoUK, told UKTN it remained cautiously optimistic.
“We continue to work with the government, the Bank of England, the FCA and other policy and lawmakers to raise awareness of the industry and the needs of our members,” CryptoUK director of operations Su Carpenter said.
“We broadly welcome the government’s approach to the introduction of a regulatory framework for the cryptocurrency industry, which is important for both consumers and businesses.
“The UK has the skills, talent and wider ecosystem to cement its status as a truly global digital assets hope and we hope the government, and others, continue to realise this ambition.”
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