The State of Crypto in the United Kingdom — Future Crypto Hub or Failed Economy?

But despite a turbulent last quarter, the UK appears to be moving in the right direction. And with new leadership and a change in strategy, it could be on track to separate itself from other G20 countries.

The country is now set to embark on a major push to not only restore its economy but also reinvent itself as a global crypto hub — potentially multiplying its crypto tax revenue and importing a host of new talent to boot.

But will it work?

The Collapse of the Pound Sterling

Source: marketwatch.com

The GBP has been on a negative trend against the USD, losing over 40% of its value since 2007 — after it hit a record high of 2.06 GBP/USD. This downtrend accelerated dramatically between June 2021 and September 2022 — during which the pound lost more than 26% of its value against the dollar in 15 months.

Owed to the bungled execution of Brexit, sustained political turmoil, hiking interest rates, energy crunch, and the poorly received (and now largely scrapped) “mini-budget”, the pound has seen its purchasing power and relative value tank.

Like most fiat currencies, the British pound sterling (GBP) has been crushed by the US dollar (USD) in recent months. Indeed, the USD has gained 12.98% against the GBP over the last year, which places it among the top four of G10 currencies against the USD. For comparison, the USD gained just 2.15% and 4.51% against the Swiss franc (CHF) and Canadian dollar (CAD) respectively in this time.

England Welcomes New Prime Minister

On October 20, 2022, former British prime minister Liz Truss resigned from her post after just six weeks in office — becoming the shortest-serving prime minister in UK history by a wide margin.

This came following weeks of controversy and political turmoil surrounding her now failed mini budget.

Just days later, Rishi Sunak was welcomed into office as the fifth PM in the last six years (and the third this year). This was largely seen as a boon for the UK economy, given Sunak's independent success as a businessman and long storied history as a member of parliament.

Immediately following his appointment as UK’s new PM, the pound sterling began to reclaim some of the losses it incurred while Liz Truss held the post. With a new plan to rescue households, bolster the economy, guarantee wages, combat inflation, and inject new capital into the economy, Sunak is now charged with ensuring its revival.

As a vocal advocate of blockchain and crypto, Rishi Sunak is seen as a crypto-friendly PM. During his post as Chancellor of the Exchequer, Sunak said:

“It’s my ambition to make the UK a global hub for cryptoasset technology, and the measures we’ve outlined today will help to ensure firms can invest, innovate and scale up in this country.”

Sunak is now likely to introduce a financial market infrastructure sandbox, which will allow firms to explore the use of blockchain technology and push innovation in the sector.

Learn more about CBDCs and their potential role in society here.

Tax Changes and Turbulence

In September 2022, the UK's Chancellor of the Exchequer, Kwasi Kwartend delivered the not-so-mini "mini-budget" — which was designed to tackle the cost of living crisis and boost the economy by cutting taxes, scrapping several planned levies and tax hikes, freezing energy bills, and introducing several new investment zones around the UK.

Just weeks later, almost all of the tax cuts put forward in the mini-budget were scrapped following a dramatic government U-turn. This caused significant political unrest, while news emerged that the government may reduce the income tax thresholds — helping it raise more money to restore the economy.

The UK’s Crypto Future

But with a new PM now in office, the UK might soon get the boost it needs to separate itself as a global crypto hub.

Is your country considered one of the most crypto friendly? Find out here.

Some of the measures set out in the plan include:

1. Creating regulations that make stablecoins a recognized form of payment.

2. Introducing a Cryptoasset Engagement Group to work closely with the industry and tackle issues facing the cryptoasset sector.

3. Potentially improving the competitiveness of the UK tax system to help foster growth.

4. Working with the Royal Mint to produce an NFT for Digital Britain (currently in development).

Should the government execute these measures quickly, it could find itself a hotbed for crypto innovation — competing directly with crypto-friendly countries like Georgia, Malta, Singapore, Portugal, and the UAE (Dubai).

But it will need a substantial overhaul of its crypto taxation rules to stand a chance of becoming a real crypto hub, given that many countries tax crypto profits at 5% or less. Finally, it remains to be seen whether the government will pass these policy changes into law — especially given arguably more demanding issues like the cost of living crisis. However, with the seemingly consecutive implosions in crypto this year and potentially fraudulent activities from the likes of FTX , the UK is seemingly more certain about the need for greater clarity and scope of regulation, which they believe will allow innovation to thrive while protecting consumers and businesses.

Echoing this, Minister Andrew Griffith mentioned that “there are questions about the future of crypto — but we’d be foolish to ignore the potential of the underlying technology.” The UK is certainly not ignoring the cryptocurrency industry — the government is “consulting on a world-leading regime for the rest of the cryptoasset market later this year” — but only time will tell if and when the policies implemented will be effective.