What Rishi Sunak as Prime Minister means for the UK crypto industry

What Rishi Sunak as Prime Minister means for the UK crypto industry

UK Prime Minister Rishi Sunak at 10 Downing Street.

Dan Kitwood | Getty Images

British cryptocurrency companies and investors have high hopes that new Prime Minister Rishi Sunak could turn around Britain’s waning cryptocurrency ambitions.

The UK’s new leader, who was finance minister in former prime minister Boris Johnson’s government, faces a daunting to-do list, which includes undoing the economic havoc wrought by his predecessor Liz Truss. Crypto isn’t exactly high on his priority list, but industry insiders say there’s reason to be optimistic.

“The feeling among entrepreneurs is relief,” said Christian Faes, co-founder of digital lending startup LendInvest. “There is a sense that we finally have someone sane in Number 10, after the arrogance and incompetence of Liz Truss and [ex-Finance Minister] Kwasi Kwarteng almost crashed the UK economy.”

“Rishi sees the opportunity and the potential that crypto has and wants the UK to be a leader in it,” added Faes, who also chairs the Fintech Founders network.

Sunak, a former Goldman Sachs analyst, has expressed a positive attitude toward crypto on several occasions. As Britain’s finance minister, he outlined a grand plan to make the country a global crypto hub in April. This included bringing stablecoins within the regulatory parameters and allowing the Royal Mint, the UK’s official coin maker, to launch a non-fungible token.

At a drinks reception hosted by venture capital firm Index Ventures in June, Sunak said he was “determined” to make the UK “the jurisdiction of choice for crypto and blockchain technology”.

But after weeks of political uncertainty, crypto firms and investors are wondering what it will do to stimulate the market, which is licking its wounds after a punishing few months for digital asset prices and a spate of corporate bankruptcies.

“Uncharacteristically disorganized”

Prior to Sunak’s appointment as Prime Minister, confidence in the UK’s position in the global crypto market had been on the wane.

In a survey of 300 UK fintech founders, only 9% believe they are pioneering crypto. Almost 20% of founders believed the regulator was “actively implying” that the UK was not the place to start a crypto company, according to Fintech Founders research.

The Financial Conduct Authority has been criticized for being slow to approve licenses for crypto firms, an issue that has caused many firms to close and set up shop elsewhere in Europe. Fintech app Revolut just recently won a license for its crypto entity after several extensions to the deadline to finalize the approvals.

For its part, the FCA says a large number of applicants have failed to meet its anti-money laundering standards.

“I find that unfortunately this is yet another example of the UK acting very uncharacteristically unorganized,” Matteo Perruccio, president of the international firm at cryptocurrency-focused fund manager Wave Financial, told CNBC.

While Switzerland is an example of a country that has been “brilliant” in attracting products that trade cryptocurrencies, or ETPs, among other products, Perruccio said.

However, the UK 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. However, it did not grow as much as Germany, where on-chain activity grew by 47% year-on-year.

As London looks to compete with EU financial hubs after Brexit, crypto could be a way to improve its chances, industry insiders say.

“There is an opportunity to provide clarity to the industry and enable it to play its part in delivering on its mandate to encourage businesses to invest, innovate and create jobs in the UK,” said Jordan Wain, head of public policy of the United Kingdom in Chainalysis. he told CNBC.

What could he do?

Sunak could seek to align the efforts of various UK regulators to police crypto, something President Joe Biden has pushed for in the US

While the UK government has kept the door open to digital currencies, officials at independent regulators have taken a tougher tone on the industry.

Another way Sunak could boost crypto in the UK is by promoting the Bank of England’s project to explore a central bank digital currency.

In April 2021, Sunak’s finance department launched a joint working group with the central bank looking at the feasibility of a token recognized as equivalent to the British pound. It’s been called “Britcoin,” though it probably won’t look anything like bitcoin, which is decentralized and volatile.

“We may now see an acceleration of the work being done on these proposals — one that we’ll be watching over the next few months,” Varun Paul, director of market infrastructure at crypto software firm Fireblocks, told CNBC.

The Federal Reserve, the European Central Bank and other central banks are considering their own digital currencies. But China is leading the CBDC race, with a digital version of the yuan already being actively tested in several provinces.

More than anything else, crypto investors want to see Sunak give the industry some clarity. In the US, the government issued a framework for cryptography. And the European Union has passed a sweeping set of laws governing the sector.

The UK has the Financial Services and Markets Bill, which aims to make the country’s financial sector more competitive after Brexit. It is currently making the rounds of parliamentary votes but, once passed, will recognize crypto assets as regulated products.

“One would expect the path to regulatory clarity to be significantly shorter [Sunak] at the helm,” Martin Hiesboeck, head of blockchain and crypto research at trading platform Uphold, said in an emailed comment.

Leave a Reply

Your email address will not be published. Required fields are marked *