Chancellor Rishi Sunak recently announced his intention to make the UK a global hub for cryptocurrency by recognising so-called Stablecoins as an accepted form of payment alongside older cryptocurrencies like Bitcoin. Furthermore the Government announced a Royal Mint NFT and a plethora of other measures to court digital asset companies and offer protection against potential scammers. The message being sent from the government is clear, the UK is open for crypto businesses.
The waves of new legislation is intended to relax increasingly stringent regulations that critics of the UK’s approach said was stifling innovation. However, the price crash of Bitcoin has led to uncertainty over the currency’s viability in the long-term. Global inflation is giving rise to investors moving away from cryptocurrency in favour of investments with fewer risks attached. With crypto becoming so popular, it is important the UK government look at ways it can effectively regulate the industry, in much the same way it did when paypal casinos started appearing. So in light of recent events and the introduction of the government’s new regulatory measures, what can we expect to happen over the coming months?
Stablecoins’ success vital for UK
The UK’s crypto push comes as firms operating in financial hubs such as the UK and US are ratcheting up pressure on governments, regulators and lawmakers to offer clearer rules and regulations on digital assets. Chief among these new regulations is the aforementioned regulation of issuers of Stablecoins. Unlike some of the more established forms of cryptocurrency, Stablecoins have a less volatile value, and the net benefit of that is investors will not have as much risk attached and will likely feel more confident.
Furthermore, the chances of scammers emerging to rob people of their life savings is significantly limited when they invest with this form of cryptocurrency whereas beforehand vulnerable people were often left to be exploited. Later this year it will consult on a number of regulations for digital currencies, then introduce new measures based on its research. The ability of the UK government to ensure it’s success will be a huge factor in the overall outcome of the new policies and whether the UK can establish itself in Sunak’s words as the “global hub” it desperately wants to.
What impact will regulatory ‘sandbox’ have?
A regulatory “sandbox” will be launched by the Bank of England and FCA next year for testing the use of blockchain in market infrastructure. The purpose of said sandbox is to help firms innovate and experiment so as to ensure the UK financial service sector remains at the forefront of technological advancements. The benefits of this will be that the loosening of restrictions will certainly attract investors and businesses the world over to come to the UK when dealing with cryptocurrency, however there are a few pitfalls that could derail this project.
Sunak is determined to expand the UK’s standing in the cryptocurrency game without compromising on reliability and security. The problem being that with innovation and experimentation comes an element of risk, as has been evident with cryptocurrency from day one. Not to say this move isn’t necessary, reassurances will no doubt ease the burden felt by wary investors who lack confidence. However, Sunak will need to perform a juggling act so as to maintain an element of confidence from potential investors whilst appeasing cryptocurrency businesses’ intentions to make the most of the relaxed regulations.
Cryptoasset Engagement Group could be the perfect solution
Along with various other changes the government made in their cryptocurrency overhaul was the establishment of a Cryptoasset Engagement Group. It’s intended purpose is to act as a middle-man between the government and industry leaders to monitor updates in the market. It will also convene with key figures from the regulatory authorities to advise the government on issues within the sector. At first glance it might just seem like another layer of bureaucracy in an already over-regulated sector as it is, but a theme that has developed and is evident throughout Sunak’s masterplan is the need for security and the ability to reassure people that cryptocurrency is worth of investment in the long-term, not just a fad.
The group can set about it’s objective quite easily but it’s advantages are more subtle than just another form of regulation. It can act as a platform for dialogue between the government and industry leaders to gauge where the mood is shifting across the globe and might give the UK an advantage should they decide to update their regulations further to adjust to business leaders’ needs as well as the market’s needs. Part of the new plans was for the Financial Conduct Authority to hold a two day ‘Cryptosprint’ in May with industry participants to seek out views from industry that will be vital in the development of a future cryptoasset regime for the UK. A worthwhile idea but the establishment of this engagement group means this need not be a one-off event limited to only a few days throughout the year.
New regulations not there to stifle investment
With the current market volatility, regulations were arguably a necessity so as to maintain cryptocurrency’s credibility amongst lawmakers and investors alike. The landscape of online digital currencies is ever-changing and government intervention was inevitable if Sunak is serious about establishing the UK as a leader in that landscape. Whilst crypto startups and venture capitalists will be of the opinion that high risk garners high reward, the likelihood is the vast majority of them will be glad to hear that the government are taking action so as to avoid repeats of the Bitcoin crash that happened earlier this month and ensure that there is an element of financial security when dealing with cryptocurrency in the future.