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


Sunday 18 September 2022 2:55 p.m

through Simon JenningsExecutive Director of the UK Cryptoasset Business Council

The UK crypto economy is on the cusp of major change. Reports from HM Treasury Department suggest that the regulatory perimeter for crypto assets will begin a reform process later this year. But exactly what form that will take remains to be seen.

In April, the then Chancellor announced his ambitions “Making the UK a global hub for cryptoasset technology and investment”. This was met with a wave of excitement across the global crypto economy.

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

Fast forward to now and we live in different times – not least with a new prime minister and teams of ministers.

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

The first signs are positive. With Richard Fuller MP, a current Treasury Secretary, echoing the UK’s desire “dominant global hub for crypto technologies (…) to become the country of choice for those who want to create, innovate and build the crypto space”.

In addition, progress on the recently introduced Financial Services and Markets Bill is encouraging. The bill will introduce a stablecoin regime and allow a wider range of payment methods to be used in the UK.

But political ambition and platitudes alone will not get us where we need to be. However, without a clear political path, the current operational realities will remain the same. We need tangible results – an appropriate regulatory framework that balances innovation, market integrity and consumer protection. With data released in July on behalf of HMRC showing that 10% of UK adults have held crypto assets – up from 5.7% in January 2021, can we afford to get this wrong?

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trussnomics

Prime Minister Liz Truss reiterated at the start of her term that she would do it “Strengthening the City to Drive Economic Growth” through tax cuts and regulatory reforms as part of their bid to maintain a competitive advantage; and “Accelerate Growth and Investment”. This clear focus, coupled with the Chancellor’s promise to the city of “Big Bang 2”, is a positive signal.

Crypto assets can play a leading role in this vision and help achieve these goals. However, it is vital that this government adopts a ‘technology’ and ‘digital first’ approach to policy making. Rather than viewing crypto assets as a threat to the existing ecosystem, they should be viewed through the lens of a tool that extends and revolutionizes existing and embedded technologies to create new opportunities that the City of London can unleash.

Truss might 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 included her name in a report overseen by Sir Iain Duncan Smith MP calling for accelerated plans for a digital pound.

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The industry can also take much comfort from Truss’ recent appointments to their top team within Number 10. It shamelessly hired staff who cut their teeth in centre-right think tanks.

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Chief among them was Ruth Porter, deputy chief of staff, who worked first at the Institute for Free Market Economic Affairs and then at Policy Exchange. Policy Exchange has been a crypto sympathizer in the past, and in 2018 urged policymakers not to write off the sector. Or Matthew Sinclair, Chief Economic Adviser, in Policy Unit #10, drafted straight into the “digital economy” leadership. at the management consultancy Deloitte. And he will be joined by Shabbir Merali, who has advised Truss on economic issues since she was Treasury Secretary. A former Whitehall adviser says he has been evaluated by Treasury Mandarins and takes a keen interest in technology policy and how it affects 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 mandate of City Minister from the Economic Secretary to the Treasury (EST) and assume responsibility for financial services, including cryptoassets. Griffith is a skilled operator and very business-friendly, having served on Sky’s board for over ten years and then being appointed Chief Business Adviser to the Prime Minister. We can expect a measured approach to policy-making and one that includes the backbenches, reflecting his previous role as Minister for Politics and head of the Prime Minister’s Policy Unit.

No time like the present

While countries like Switzerland, France and Dubai have regulated in favor of crypto assets, the UK has stood still. The UK has no native unicorns in the crypto-asset space. Even Austria, which has a fraction of our GDP, has one. We had one recently valued at £12bn but they left the UK due to what was perceived as a hostile regulatory environment.

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If Britain isn’t careful, we will lose in the global technology race. There is a technology company on the FTSE. We need to incubate and attract tomorrow’s businesses. The broader industry trends in the UK are worrying.

Currently, the flow of venture capital investing in London’s crypto asset firms is going in the wrong direction, as firms report a nearly 70% drop in venture capital transactions between 2021 and 2022. Meanwhile, global transactions more than doubled to £4.08 billion.

If done right, crypto assets will play a game-changing role in helping the UK thrive in a post-Brexit landscape – helping to ignite a wave of digital innovation and a future-proof job market. Considering that global investments in the crypto and blockchain sector will grow from $4.6 billion in 2021 to

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

Simon JenningsExecutive Director of the UK Cryptoasset Business Council



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