Rishi Sunak is big on crypto. He’s made that clear. For years, the British prime minister, a multimillionaire former hedge fund manager, has pushed for widespread adoption of blockchain technologies as a rocket boost for the national economy.
But not everyone’s buying it. There are lawmakers within the prime minister’s own Conservative Party who are vocally anti-crypto. With a general election looming on the horizon, the window for Sunak’s dream of turning the U.K. into a global digital asset hub is narrowing.
Not least because the main opposition Labour Party led by Keir Starmer — widely tipped to win by a landslide in a vote scheduled for no later than January 2025 — hasn’t yet outlined where it stands on digital assets. For crypto-skeptic author David Gerard, that lack of engagement spells bad news for the British crypto industry.
“Labour has expressed almost no interest in blockchain-related matters, so I suspect the current enthusiasm for blockchain is not lasting past next election,” Gerard said.
But for advocates of the industry, the fact that sections of the public already use digital assets means the discussion is far less cut and dry.
Ijeoma Okoli, a digital assets legal and regulatory expert and co-founder of the Digital Economy Institute think tank, said that up to 15% of U.K. adults have at least “dabbled” in crypto assets. Independent regulator the Financial Conduct Authority (FCA), meanwhile, calculates U.K. cryptocurrency ownership at just under 10% of the population.
“That’s a significant part of the voting public,” said Okoli. “You never have 100% of the people agreeing on anything, do you?”
Because of that, she added, it’s important that the U.K. crypto conversation remains “politics agnostic” regardless of who’s in power beyond the election — if only to ensure that those already engaging with the industry, or might in future, are represented.
Hiccoughs
When a16z crypto, the crypto arm of Andreessen Horowitz, set up the U.S. investment giant’s first international office in London in June, Sunak hailed the move as a testament to the strength and competitiveness of the U.K. business environment. But he also acknowledged there was still work to do for the U.K. to become a genuine digital asset hub.
Sunak’s involvement in directing crypto policy began during his time as finance minister to then Prime Minister Boris Johnson from 2020 to 2022. In April 2021, he convened a task force to explore a potential digital pound, a central bank digital currency (CBDC) issued by the Bank of England.
A year later, he announced a roadmap for widespread adoption of blockchain technologies. That included plans for regulating privately issued stablecoins, development of a non-fungible token (NFT) by national currency maker the Royal Mint and a crypto-friendly adjustment plan for the tax system.
But within a few weeks, the crypto industry was on its back. The Terra-Luna stablecoin protocol folded in May 2022. The crash set off a chain-reaction of industry implosions and a period of crypto winter that the market is yet to emerge from.
Those ruptures in the crypto industry coincided with a months-long period of self-harm by the Conservative Party. Johnson — accused of covering up ministerial parties at his official residence during a nationwide coronavirus lockdown — resigned and was replaced by Liz Truss in September.
Truss received her marching orders 49 days later after a string of calamitous decisions, including plans for swingeing tax cuts that briefly threatened to derail the economy, and was succeeded by Sunak in late October.
In office, Sunak resumed his digital asset push. But the damage was done. In March, with institutional cash flooding out of the crypto industry, his flagship Royal Mint NFT project was declared a dud. The project, which suffered from a lack of direction and technological feasibility, was labeled a “gimmick” by Labour’s shadow economic secretary Tulip Siddiq.
“This out-of-touch government should be focused on the cost of living crisis, not wasting time and taxpayers’ money on an NFT vanity project and promoting dodgy stablecoins,” Siddiq said following the announcement.
Crossed wires
Crypto-skeptic David Gerard said the failure was part of a wider lack of understanding of the technology by the Tories (Conservative politicians).
“The Conservative blockchain enthusiasm is very non-specific. The Tories don’t seem at all clear on what specifically they’re advocating for here,” he said.
He added that in the face of growing public dissatisfaction at persistently high inflation — 6.8% in July with food prices up 14.9% year-on-year — the Conservatives were clinging on to anything that might mask wider policy failings. Of particular note in that regard, Gerard said, was the widespread support among the Conservatives for Brexit.
Bloomberg economists report that the decision to leave the European Union is costing the U.K. economy £100 billion a year (US$124 billion) in lost output, fueling the nation’s economic woes.
“The fundamental problem is that Brexit failed hard for almost everyone except a very few rich ‘sovereign individuals.’ If the Tories want to keep power, they need to do something that isn’t just rejoining Europe,” Gerard said.
“So the Tories have seized upon ‘blockchain’ — whatever they think that is — in the hope this will be the magic they desperately need,” he added.
The problem is exacerbated by Sunak’s inability to get everyone in the party reading from the same hymn sheet.
A Treasury Committee report released May 17 found that cryptocurrencies pose “significant risks” to consumers. The committee, chaired by crypto-skeptic Conservative MP Harriett Baldwin, concluded that the price volatility and risk of loss means cryptocurrencies should be regulated as gambling.
The headline-grabbing declaration dialed up public scrutiny of crypto at a time when November’s FTX crash and the crisis at a number of crypto-friendly U.S. banks in early 2023 had the industry under a microscope.
Even before the Treasury’s report came out, there was already a large section of the British public that was skeptical about digital assets.
Between April 26 and May 18, New York-based blockchain developer Consensys and London-headquartered data analytics firm YouGov conducted an online survey of global attitudes to crypto, differentiated by country. It found that 55% of the U.K. population consider the industry too volatile and subject to scams to engage with.
Another YouGov poll from last year found that 60% of the British public believe cryptocurrencies are not to be trusted.
In that light, just how damaging could the gambling label prove for improving the public perception of blockchain technologies and their uses?
“Incredibly damaging,” said Dion Seymour, a former crypto policy lead at HMRC, the U.K’s national tax service. “l was banging my head against the table. It felt like we had gone right back to almost Victorian times in terms of understanding.”
Not only was the Treasury Committee report “out of touch” and “not fully thought-through” — gambling winnings are untaxed, for one — the label would also make people think twice about engaging with an industry they may otherwise have found value in, Seymour added.
Put up and make do
But it’s not all doom and gloom for blockchain advocates and developers. Resigned to losing the more forthright backing of Sunak’s Conservative government, they still feel accommodations can be made with Keir Starmer’s Labour.
“We have had a pro-growth, pro-innovation Conservative government. That’s not to say that Labour is not also pro-growth and pro-innovation, but sometimes priorities can be differentiated,” said Teana Baker-Taylor, non-executive director of think tank CryptoUK and a U.K.-based policy lead for stablecoin issuer Circle.
“We’re still waiting to see what the Labor Party’s mandate will be, and I think that will come closer to the time of the general election,” Baker-Taylor added.
Labour ministers have generally been quick to criticize the “wild west” attitudes they said the overly-permissive Conservatives allowed in the U.K. crypto market. The lack of regulation in the space, they argued, led to cryptocurrency heists and other scams dangerous to consumers.
But the passage of the Financial Services and Markets Act (FSMA) in June — which includes an increased mandate for regulators to oversee digital assets — has put paid to many of those concerns.
It has also reduced potential pain points for a future Labour government that may wish to explore for itself the wider field of Web3 — a new phase of the internet built around decentralized blockchain technologies, the metaverse, and non-fungible tokens (NFTs) — now that adequate regulation is in the works.
“One thing I’ve learned is you work with what you’ve got,” said Sean Kiernan, CEO of digital asset banking provider Greengage. The mood music, he said, while good under the Conservatives, would not stop playing under Labour. Just the song will be different.
“For example, I think Labour is keen on the likes of financial inclusion and opening up access to things. This is a great story for Web3, so we just need to tell the story and make sure that it resonates,” he said.
Whatever the election throws at it, the industry will simply have to adapt, Kiernan added.
“It might not be that Starmer, if he gets the seat, says he wants the U.K. to be a crypto asset hub. But I think the engine is already heading in the right direction. We just need to continue to push,” he said.