Is the UK About To Become The World's No. 1 Crypto Hub?

Is the UK About To Become The World's No. 1 Crypto Hub?
Jonathan Hobbs, CFA

over 1 year ago5 mins

  • The new UK Prime Minister, Rishi Sunak, has said he wants to turn the UK into the world’s crypto hub.

  • The UK, Europe, and the US are all moving toward regulatory clarity around crypto, which will give more traditional institutional investors the nod they need to start buying in.

  • Crypto regulations will still take a while to be fully implemented, which means you have time to buy in before the big dogs.

The new UK Prime Minister, Rishi Sunak, has said he wants to turn the UK into the world’s crypto hub.

The UK, Europe, and the US are all moving toward regulatory clarity around crypto, which will give more traditional institutional investors the nod they need to start buying in.

Crypto regulations will still take a while to be fully implemented, which means you have time to buy in before the big dogs.

Rishi Sunak, the UK’s newly seated prime minister, has said in the past that he’d like to see the fifth-largest economy become the world’s crypto hub. So it’s not surprising then that there’s a lot of speculation about whether he might push to legitimately regulate crypto assets – a move that would lend new credibility to the industry, and bring new investors into the fold. Let’s take a look at what it might mean for you…

What’s going on with crypto regulation in the UK?

It’s not just Sunak. On Tuesday, the House of Commons voted for crypto assets to become regulated financial investments, meaning UK regulators would treat crypto like other more established investments. Specifically, the House voted to include crypto in the Financial Services and Markets Bill 2022-2023 – a blueprint for how the UK aims to tackle financial services regulation post-Brexit. What happens next is a series of debates and revisions, before the bill gets kicked up the ranks to the House of Lords and then eventually to King Charles III for some kind of royal signature.

And then there’s Sunak: back in April of this year, when he was the UK’s minister of finance (chancellor of the exchequer, if you will), he proposed turning the UK into the global crypto hub. It would encourage crypto firms, he argued, to set up shop in the UK – free from the uncertainty of unclear regulations. And while the prime minister has no direct vote in the House of Lords, he’s still the leader of the UK’s Conservative party – the Tories – who command 253 of the 762 votes. So when push comes to shove, having Sunak at the helm means the bill is more likely to pass, and the UK is more likely to gain some standing as the world’s crypto hub.

What does this mean for UK crypto investors?

Right now, there are a lot of big institutional investors who are itching to buy into crypto, but without regulatory clarity, the answer from their compliance departments is: No. If the bill becomes the law, however, UK regulators would treat crypto like any other regulated asset class. That would remove any red tape that dissuades UK fund managers from investing in crypto, which in theory would give them the go-ahead to invest in crypto on behalf of their clients.

As it stands, there are plenty of hedge funds and family offices in the UK that do invest in crypto (directly or indirectly). But those funds have fewer regulatory obligations than, say, a pension fund, as they’re only open to “qualified” investors – high net-worth or experienced investors who need less protection in the eyes of the UK’s Financial Conduct Authority (FCA).

Is this being talked about anywhere else?

The UK could be out in front for now. But it’s not all on its own: the European Union is set to sign off on its Markets in Crypto Assets Regulation (MiCA) bill later this year, which will bring regulatory clarity to institutional investors across the 27-country bloc. Although those regulations are expected to be in full force sometime in 2024 – after an initial transition period – you can be sure that a lot of major European funds are already planning ahead to take advantage.

And as for the US, the White House published a fact sheet in September outlining its core principles for crypto regulation. It’s a detailed document, but the long and the short of it is that the US is taking crypto regulation very seriously, and they want to foster an environment that encourages responsible innovation while protecting consumers and investors. There’s still a lot of work to be done here, of course, and the Securities and Exchange Commission (SEC) has been notoriously ambiguous on how it plans to regulate the industry going forward.

What’s the opportunity here?

Crypto regulation has its pros and cons. On the plus side, it’d likely give people better legal protections when using exchanges and platforms, which could encourage more crypto newbies to invest. And the “Know Your Customer” and “Anti-Money Laundering” regulations would be a big green light for institutional investors who want to use those platforms to deal in client funds. On the down side, though: crypto firms would need to spend a ton of money on compliance to stay in the regulator’s good books. That could deter smaller operators from doing business, which could stifle innovation in the long run.

Clearer (and likely stricter) crypto regulation may not be welcomed news for crypto evangelists, who favor decentralization and freedom over compliance and central control. But like it or not, regulation is a necessary evil in crypto – there’s just no way the big money is going to jump on board without it.

From where I’m standing, it's not a matter of if clear regulation comes to crypto, but when. And having a new crypto-friendly G7 world leader in Sunak could certainly push things forward. Still, the wheels of regulation and compliance move slowly, which means it’ll be a while before institutions can easily invest in crypto like they can with other asset classes.

But here’s the good news for you: unlike most fund managers, you don’t have a compliance department breathing down your neck each day, dictating whether you can invest in crypto. So you still have ample time to buy in before the big dogs.

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