- In the case of cryptocurrencies and blockchain – the UK is far from being a leader in financial innovation or even a liberal approach.
- Investors and startups are bogged down by inefficiencies in bureaucratic policies and procedures, high overheads, and silos.
- Stiff laws on taxation, market fluctuations, and bad publicity have put off investors.
The United Kingdom has always boasted of being ahead in the financial revolution. The government has been vocal about its plan in areas such as green finance, trading of Renminbi, and issuance of sukuk in the past seven years after 2010, and it added cryptocurrency to the list.
However, these are not accompanied by concrete actions by the organizations concerned and/or their host countries. The UK looks set to sit this one out, despite countries worldwide gradually forging ahead with blockchain and digital assets.
The Reality of Crypto Innovation in the UK
Discussions of blockchain bonds and crypto advancements are often hollow. For conventional financing, in 2022, digital bonds accounted for 0.02% of the $7.3 trillion raised.
The concept of executing government debt – also known as gilts – via blockchain is discredited. The government’s clear lack of desire to adopt Bitcoin goes hand in hand with this lack of enthusiasm.
UK’s Reluctance to Change
When it comes to the DMO in the UK, it appears that leaders are not particularly intrigued by the possibility of blockchain technology. It is regarded by issuers as unhelpful interference in their main business, for example, bond offering.
Lenders are equally passive, in part because platforms designed to trade digital bonds are not compatible enough. This lack of standardization remains particularly detrimental to building secondary markets, as cited earlier.
It also goes to the crypto startups’ detriment. The UK financial industry is well-developed and tightly regulated, and the large financial institutions that dominate the country’s economy are likely to be reluctant to incorporate new technologies that challenge their leading position. Therefore, there is no active innovation in this space.
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It would take a large scale of bonds digitized for the concept to make economic sense, but with no linked platforms, no one wants to go first. As a result, development comes to a standstill.
It might be that should the government advocate the use of blockchain bonds, implementing these into the current framework of banking institutions would be possible, though at an extremely high cost. Australia’s stock exchange confronted the same issues a few years ago, which cost them a $171 million disaster.
Regulatory Hurdles
A second key problem is the United Kingdom’s comparatively slow response to cryptocurrency regulation. However, even these few actions performed by the FCA – while it introduced anti-money laundering measures and escalated advertising standards – remain insufficient for the development of a coherent set of measures.
The law currently tolerates only a narrow list of cryptocurrencies, which leaves investors and businesses in the dark about what is allowed. As a consequence, the European Union’s Markets in Crypto Assets Regulation (MiCA) not only has relatively fewer checklists compared to Hong Kong, but also offers a much more comprehensive guide, including consumer protection and market stability guidelines that are absent from GEM’s list.
The UK has subtly raised its eyebrows at MiCA and considers the legislation as much too accommodating for emerging technology such as crypto.
A Decline in Investor Interest
London’s passion for crypto is waning. The market has been commonly associated with a high level of fluctuation, through which most retail investors have been discouraged. Also, with the current tax measures, the government has made it even more unprofitable to engage in cryptocurrency businesses.
Since April 2020, the amount of tax-free capital gains in respect to cryptocurrencies was cut from £6,000 to £3,000, which greatly lessened the opportunity to invest in Bitcoin and other cryptocurrencies. The existing volatility in the market is enough to deter small businessmen, but when coupled with a higher tax burden, it is the final straw
Indeed, media also have an influence in determining public perception. There have been so many stories of scams, fraud, and failures that it’s hard for good news to get out. For a lot of people, the world of crypto feels more like a sanctuary for misconduct than an opportunity to invest in.
Cultural Conservatism
Not surprisingly, the British approach to speculative investments is conservative, and the same stance is concerned for cryptocurrencies. However, unlike the emerging markets in the US or Asia, the UK takes a conservative approach. Unfortunately, this risk-averse culture means that the nation is reticent when it comes to change within the financial markets, especially with regard to using crypto and blockchain technology.
First of all, though the UK boastfully discusses financial innovation, its activities indicate otherwise. If we bear in mind an already detached financial sector and an uncertain government, it can be stated that real advances toward blockchain implementation do not look promising.
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