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News/UK's Crypto Isolation: Risks & Opportunities

UK's Crypto Isolation: Risks & Opportunities

COIN360

Apr 15 2024

2 months ago3 minutes read

How the UK is Isolating Itself With Its Crypto Stance

A few years ago, the United Kingdom made it clear that it wanted to become a major player in the global crypto scene. This was prior to Rishi Sunak becoming the Prime Minister and right around the time that crypto experienced a post-COVID bull run. 

At the time, the UK had everything going for it to become this crypto hub; a tech-froward population, status as a European economic powerhouse, and a leader who was on board with these plans. But currently, the UK seems to be lagging behind in the crypto world, and this could put its goals in jeopardy. 

A Lack of Institutional Support

The biggest story in the crypto industry in 2024 thus far has been the approval of a spot Bitcoin ETF by the Securities and Exchange Commission in the United States. This approval has been a long time coming and while 11 spot ETFs have been approved, more are expected before the end of the year. It also meant many things for the industry- a spike in the value of Bitcoin itself, speculation about more ETFs being approved, more eyes on the industry, and much more. It has also seemingly inspired other countries to support crypto-driven investment vehicles. 

Just recently, it was announced that the South Korean Financial Supervisory Service will be meeting with SEC Chair Gary Gensler later this year to discuss the ETF approval. This has led some to speculate that the country might be approving crypto ETFs in the future. Amidst all of this, the UK does not seem to be moving towards greater institutional support for cryptocurrency. 

Chase, the UK arm of J.P. Morgan, announced back in 2023 that it would be banning all crypto transactions for customers due to concerns about fraud. This is on top of HSBC, another UK bank, banning crypto transactions and NatWest placing restrictions on how much can be spent on crypto transactions. 

Even on a governmental level, there has been some pushback. The Financial Conduct Authority, back in 2021, banned the sale of crypto-based derivatives to consumers. This essentially puts a roadblock on any crypto ETFs being launched in the future. The reason behind this appears to be concern about leveraged products being launched that rely on volatile tokens. 

And while this move could very well be rooted in a desire to protect consumers, it puts the UK in a difficult position. 

How This Affects The UK

On the surface, all of these factors would appear to be independent events but they contribute towards the UK being isolated from other countries. When it comes to the public sector and the implicit ban on crypto ETFs, the UK is now lagging behind when it comes to crypto investment vehicles. 

 

As more countries follow the US’s lead and crypto ETFs become the norm, the UK will be one of the few first-world countries to not offer it. This signals to the crypto industry and those who want to invest in it to go elsewhere. And eventually, they will, taking the billions of dollars that these ETFs are bringing in with them.

 

Then there is the private sector, which is heavily restricting consumers from being able to spend their cryptocurrency at various businesses, which will also drive them elsewhere. Take gambling, for example, which is quite popular in the UK. Many casinos these days accept cryptocurrency as a means of payment (source: https://readwrite.com/cryptocurrency/best-crypto-casinos/). But, if UK consumers cannot spend their fiat currency to make crypto transactions because of their banks, they will miss out on a world of benefits.  

This sort of reputation among crypto lovers does the UK no favours when it comes to establishing itself as a major crypto hub.

Can This Be Reversed?

While it is clear that the UK could lag behind other countries when it comes to cryptocurrency, there could be a chance for this trend to be reversed. Many industry experts believe that a crypto ETF will not be a reality for a while but other steps could be taken in the right direction. 

 

  • Pro-crypto regulation: Thus far, the UK government seems to have taken an offensive stance towards cryptocurrency. While there are genuine concerns about fraud (as other countries have had), this needs to be balanced out with more pro-crypto regulation. This will not only send the signal to the industry that the UK is open for crypto investment but will also impact the private sector. 

 

  • More Support for Crypto Use: The UK cannot expect to become a crypto hub if users of certain banks cannot spend their crypto with ease. More governmental support of crypto use would not only mean that more UK residents can use crypto but that they will be more protected as they do.

 

  • Progress With the Digital Pound: On January 25, 2024, the Bank of England published its response to its consultations on the Digital Pound. The Bank acknowledged that “Continuing work on digital currency will strengthen the UK’s position as a competitive global leader in finance,” but did not make a firm decision on whether or not it would be pursuing it. Considering the fact that the digital yuan is already a reality and digital versions of the euro and dollar are under development, the UK could benefit from having a digital pound. 

 

  • Support for Crypto Companies: The crypto industry has always been a self-sustaining ecosystem that brings a passionate community with it. If companies in the space are given a welcoming environment and support from the government, crypto lovers will rally around them and this is crucial if the UK is going to truly become the crypto hub it wants to be. 

Conclusion

The situation regarding crypto in the UK is quite tricky. On the one hand, the government has taken a stance of protecting consumers from fraud within the crypto industry. But on the other hand, this aggressive stance has seen access to banking services restricted and the chances of a Bitcoin ETF stalled. This, if it continues, will mean that the UK will lag behind other countries and not become the crypto hub it wants to be.

 

This trend can only be reversed if the country prioritises pro-crypto regulation alongside consumer protection, develops its digital pound, supports crypto business, and allows users to complete their crypto transactions with ease.

 

If all these can be done, the UK can shed its reputation as being hostile to crypto, develop the local crypto scene, and reap all the benefits that come with it. 

 

FAQs

  • Are crypto ETFs Legal in the UK?

The UK has banned crypto-related derivatives since 2020, which means that crypto ETFs are illegal for now. 

  • Is there a digital pound?

The Bank of England has completed a consultation rebound regarding the digital pound and has not made a decision on whether or not to pursue it. 

  • Is crypto use legal in the UK?

Cryptocurrency is legal to use in the UK, though restrictions from certain banks mean that buying crypto is often difficult for consumers.

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