UK can become a crypto-hub with Sunak at the wheel

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Cryptocurrency mining and management companies as well as British investors are hoping that the new Prime Minister Rishi Shunak could give new momentum to the digital currency market.

According to a CNBC report, Shunak, who served as finance minister in Boris Johnson’s government, has in his hands a “to-do list” to restore the economic chaos caused by his predecessor Liz Truss within her short-lived administration. The cryptocurrency market is not high on his list of priorities, but industry experts say there is reason to be optimistic.

“There is a sense that we finally have a sensible tenant at number 10 Downing Street, after the arrogance and incompetence of Liz Truss and [former finance minister] Quassy Quartet’s arrogance and incompetence barely missed leading to the collapse of the British economy,” summarizes Christian Faes, co-founder of start-up LendInvest, which provides digital lending services.

“Rishi sees the opportunity and potential in the cryptocurrency market and wants the UK to be a leader in the sector,” Faes believes.

Sunak, a former Goldman Sachs analyst, has repeatedly taken a positive stance on cryptocurrencies. As the minister responsible for Britain’s finances, he outlined in April a grand plan to make the country a global hub for digital currencies. Among other things, it envisaged bringing stablecoins under regulatory rules and persuading the Royal Mint to launch an NFT.

At a reception hosted by Index Ventures in June, Shunak had said he was “determined” to make the UK the choice for blockchain technology”.

Now cryptocurrency companies and investors alike are asking what the new UK prime minister will do to boost the market.

It should be noted that before Shunak took office as Prime Minister, the UK’s position in the global cryptocurrency market had been weakened. In a survey, with a sample of 300 British fintech founders, only 9% said the country was a leader in the crypto sector. Some 20% pointed out that regulators are “sending signals” that the UK is not the most welcoming place for a cryptocurrency management company, according to the Fintech Founders survey.

The Financial Conduct Authority has been criticised for delays in approving licences for crypto platforms, a habit that has forced several companies to relocate to other European states.

For its part, the FCA argues that the majority of companies applying for authorisation do not adhere to prevention standards for money laundering.

“Unfortunately it’s yet another example where we see the UK operating without organisation,” Wave Financial’s Matteo Perruccio told CNBC.

In contrast, Switzerland is a “shining” example of attracting digital brokerage, Perruccio added.

The UK, however, hosts a fairly “vibrant” cryptocurrency market. According to Chainalysis data, $233 billion in digital assets changed hands between July 2021 and June 2022. However, these amounts did not increase as much as in Germany, where blockchain activity increased by 47% year-on-year.

As London tries to compete with EU financial centres post-Brexit, cryptocurrencies could boost that effort by offering a comparative advantage to the UK, industry insiders argue.

“There is an opportunity to give clarity to the industry and give it space by encouraging businesses to invest, innovate and create jobs in the UK,” Jordan Wain, head of UK public policy at Chainalysis, told CNBC.

What could Shunak do?

He could align the UK’s crypto regulators in the UK with the pace set by Joe Biden in the US.

While the UK government has kept the door open for digital currencies, independent regulatory officials appear to be tougher on the sector.

Shunak could urge the Bank of England to consider creating its own digital currency (CBDC).

In April 2021, Shunak’s economic staff set up a working group jointly with the British central bank examining the parameters of a token that would be recognized as equivalent to the British pound. Its name: “Britcoin” – although it will probably look nothing like Bitcoin, which is decentralized and volatile.

“We may now see initiatives for these proposals being accelerated – it’s a topic to watch over the coming months,” Varun Paul, director of market infrastructure at cryptocurrency software company Fireblocks, told CNBC.

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

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

The U.K. has a 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 recognise crypto assets as regulated products.

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

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