U.K. cryptocurrency firms and investors have high hopes that new prime minister Rishi Sunak could turn around Britain’s fading crypto aspirations.
The new U.K. leader, who was finance minister in former PM Boris Johnson’s government, faces a daunting to-do list, which includes undoing the economic havoc wreaked by his predecessor Liz Truss. Crypto isn’t exactly high up 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’s a feeling that we finally have someone sensible in Number 10, after the arrogance and incompetence of Liz Truss and [ex-Finance Minister] Kwasi Kwarteng almost crashed the U.K. economy.”
“Rishi sees the opportunity and potential that crypto has, and wants the U.K. to be a leader in it,” Faes, who also chairs the Fintech Founders network, added.
Sunak, a former Goldman Sachs analyst, has on several occasions expressed a positive attitude toward crypto. As the minister in charge of Britain’s finances, he outlined a grand plan to make the country a global crypto hub in April. That included bringing stablecoins within the regulatory parameters and getting the Royal Mint, the official U.K. coin maker, to launch a nonfungible token.
At a drinks reception organized by the venture capital firm Index Ventures in June, Sunak said he was “determined” to make the U.K. “the jurisdiction of choice for crypto and blockchain technology.”
But after weeks of political instability, crypto firms and investors are wondering what he’ll do to boost the market, which is licking its wounds after a punishing few months for digital asset prices and a slew of corporate bankruptcies.
‘Uncharacteristically disorganized’
Before Sunak’s appointment as PM, confidence in the U.K.’s position in the global crypto market had been waning.
In a survey of 300 British fintech founders, only 9% believe it’s leading the way on crypto. Nearly 20% of founders thought the regulator was “actively signalling” the U.K. wasn’t the place to start a crypto company, according to the survey by Fintech Founders.
The Financial Conduct Authority has been criticized for being slow to approve licenses for crypto firms, an issue that has caused several companies to wind down and set up shop elsewhere in Europe. Fintech app Revolut only recently won a license for its crypto entity after numerous extensions to the deadline for finalizing approvals.
For its part, the FCA says a high number of applicants haven’t met its standards on preventing money laundering.
“I find that sadly this is yet another example of the U.K. acting very uncharacteristically disorganized,” Matteo Perruccio, president of international at crypto-focused fund manager Wave Financial, told CNBC.
Whereas Switzerland is an example of a country which has been “brilliant” in attracting crypto exchange-traded products, or ETPs, among other products, Perruccio said.
Yet the U.K. 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. It didn’t grow as much as Germany, though, where on-chain activity was up 47% year-over-year.
As London looks compete with EU financial hubs after Brexit, crypto could be a way for it to improve its chances, industry insiders say.
“There is an opportunity to provide clarity to the industry and allow it to play its role in achieving their mandate to encourage businesses to invest, to innovate, and to create jobs in the U.K.,” Jordan Wain, U.K. public policy lead at Chainalysis, told CNBC.
What could he do?
Sunak could seek to align different U.K. regulators’ efforts to police crypto, something President Joe Biden has pushed for in the U.S.
While the British government has kept the door open to digital currencies, officials at independent regulators have taken harsher tone on the sector.
Another way Sunak could boost crypto in the U.K. is by advancing the Bank of England’s work on exploring a central bank digital currency.
In April 2021, Sunak’s finance department launched a joint taskforce with the central bank looking into the feasibility of a token recognized as equivalent to the British pound. It’s been dubbed “Britcoin,” though it likely wouldn’t look anything like bitcoin, which is decentralized and volatile.
“We may now see an acceleration on the work being done on those proposals — one to watch in the next few months,” Varun Paul, market infrastructure director at crypto software firm Fireblocks, told CNBC.
The Federal Reserve, European Central Bank and other central banks are considering their own digital currencies. But China holds the lead in the CBDC race, with a digital version of the yuan already being actively tested in numerous provinces.
More than anything, crypto investors want to see Sunak give the industry some clarity. In the U.S., the government issued a framework for crypto. And the European Union has approved a sweeping set of laws governing the sector.
The U.K. has its Financial Services and Markets Bill, which aims to make the country’s financial sector more competitive post-Brexit. It’s currently doing the rounds in parliamentary votes but, once passed, would recognize crypto assets as regulated products.
“One would expect the path to regulatory clarity to be significantly shorter with [Sunak] at the helm,” said Martin Hiesboeck, head of blockchain and crypto research at trading platform Uphold, in an emailed comment.