A visual representation of the digital Cryptocurrency, Bitcoin, displayed on December 23, 2017 in Paris, France.
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LONDON — Britain is making a fresh pitch to become a global crypto hub, but faces a tough road ahead amid criticism from local entrepreneurs and U.S. competition under President-elect Donald Trump.
Britain’s Labour government has committed to making the country an accommodative environment for businesses engaged in crypto and blockchain-related activities.
In a recent speech, U.K. Economic Secretary to the Treasury Tulip Siddiq said the government aims to engage firms on draft legal provisions for digital assets including stablecoins — tokens pegged to the value of sovereign currencies — “as early as possible next year.”
She also said the government wouldn’t approach crypto staking services, which offer rewards on users’ token holdings, as collective investment schemes. Crypto industry insiders had worried such a treatment would have created burdensome regulatory requirements.
“This is a sector with enormous potential and a sector that’s already playing a central role in the U.K.’s vibrant tech landscape,” Poppy Gustafsson, Britain’s investment minister, said last week at an event organized by the U.K. division of Coinbase-backed advocacy group Stand With Crypto.
Gustafsson said the government is “committed to fostering and embracing blockchain” and is “already taking decisive steps to support this sector and ensure that we remain at the forefront of this global innovation.”
One example she cited was the launch of the Digital Securities Sandbox, a testbed for developing new distributed ledger technology-based solutions for the issuance, trading and settlement of securities in a live regulated environment.
Another example is the “digital gilt” pilot launched last month, which looks to issue U.K. government bonds on the blockchain.
Can the UK become a crypto hub?
While Britain is pushing forward a number of regulatory proposals on crypto, not everyone’s convinced it can become a globally significant place for the technology.
“I don’t know whether we have the policymakers, the government, the risk appetite, the pro-entrepreneurship attitude to really capitalize on this generational opportunity,” Steven Bartlett, a British entrepreneur famous for his “Diary of a CEO” podcast series, said in a fireside discussion at the Stand with Crypto event.
Bartlett said that spending time at both the San Francisco and London offices of his blockchain startup Thirdweb makes him think “it’s really unfair to try and build a company here compared to being there.”
Data from the U.K.’s Financial Conduct Authority suggests there’s growing demand for crypto products in the country — the average value of crypto held by Brits rose to £1,842 ($2,337) this year from £1,595 a year ago, according to a survey released by the regulator last month.
The FCA also published a roadmap detailing its plan to implement regulation for the crypto industry. The watchdog will launch discussion papers on stablecoins, trading platforms, lending, and staking over the next two years, with a full regulatory regime slated to go live by 2026.
Competition from America
Tom Duff Gordon, Coinbase’s vice president of international policy, told CNBC that the U.K. shouldn’t let regulatory momentum on crypto slow down, following Trump’s election win.
The Republican politician ran on a notoriously pro-crypto policy platform, vowing he wouldn’t sell bitcoin seized by the federal government and that he’d replace incumbent Securities and Exchange Commission Chair Gary Gensler, who took an aggressive enforcement approach against various crypto firms while heading the agency.
Last month, Gensler announced he intends to step down as SEC chair on Jan. 20, the date of Trump’s upcoming inauguration.
“The U.K. has done a lot of work,” Coinbase’s Gordon told CNBC in an interview on the sidelines of the event. “There’s a huge opportunity for the U.K. to be really successful in this area, but we do need to have regulatory clarity.”
“We’d like to see secondary legislation on staking and stablecoins,” Gordon added. “The city minister referred to that — so we’re hoping to see that as well.”
While Britain now has a regulatory roadmap in place, crypto industry executives fear that waiting until 2026 to launch a full regime could push the country behind its transatlantic peers.
Coinbase’s chief policy officer, Faryar Shirzad, told CNBC in a recent interview that he now sees the U.S. being on track to approve federal crypto legislation “fairly quickly” — potentially as soon as 2025.
Meanwhile, in the EU, a comprehensive piece of legislation known as the Markets in Crypto-Assets (MiCA) regulation is set to come into force in full later this month.
Outdated regulation blocking growth
George McDonaugh, CEO of KR1, a publicly-traded digital asset investment firm that specializes in blockchain technology, said that outdated rules in the U.K. are making it difficult for crypto-focused investment businesses like his to become more widely known publicly-traded names.
KR1 is currently listed on the Acquis Stock Exchange, a trading venue for high-growth firms.
McDonaugh said that KR1 has been trying for years to trade on the main market of the London Stock Exchange, but that it’s blocked by a 2018 rule barring tokens like bitcoin and ether from being allowed in publicly-listed vehicles.
“Time’s moved on from then,” McDonaugh said. “We believe that we can unlock a tsunami of capital into the British markets by removing that restriction.”
As the FCA tries to figure out how to develop and implement a regulatory crypto framework, experts are hoping it will encourage and foster innovation — not stifle it.
Irfan Baluch, a crypto lawyer at Cripps, said he hopes the U.K. takes inspiration from the EU, which has already taken a “leading position” on crypto regulation with MiCA.
“Applying 20th century law to 21st century technology … will only stifle innovation and drive crypto businesses offshore,” Baluch said, adding the FCA’s crypto regulation roadmap seems to be “a nod in the direction of addressing this issue” — for now, at least.
“The U.K. has this unbelievable opportunity in this moment to act really decisively … in the direction of innovation,” Bartlett said.
“If we do that in a way that the United States seems to naturally do, we won’t find ourselves being the residual beneficiary of the blockchain or AI technology — we can play a really meaningful role in making sure the value of these technologies accrues to this country. But it has to be radical,” he added.
