Five ways the UK may become a crypto hub under Liz Truss government

Liz Truss is the new prime minister of the UK and as speculation abounds over future policy decisions her views on cryptocurrencies are in the spotlight.

Former foreign secretary Liz Truss now has the keys to 10 Downing Street, having beaten former chancellor of the exchequer Rishi Sunak in the leadership race.

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Now a tweet by Truss has resurfaced revealing her views on cryptocurrencies and private enterprise, indicating that she may take a hands-off approach to regulation.

In 2018, when Truss was chief secretary to the Treasury, she tweeted: “We should welcome cryptocurrencies in a way that doesn't constrain their potential.

“Liberate free enterprise areas by removing regulations that restrict prosperity.”

When Truss was UK secretary of state for international trade, she spoke about blockchain technology during a House of Commons debate on UK-US trade, where she expressed the wish to “create great opportunities in areas such as blockchain".

She said: “We want to achieve a world-leading data and digital agreement, underwriting data flows but also dealing with issues like blockchain and artificial intelligence, thereby making sure that we and the US are leading the world and able to share these economic opportunities.”

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In recent years crypto-firms have been exiting Britain after failing to meet the UK's Financial Conduct Authority’s (FCA) stipulations on anti-money laundering, which led to fears that the UK would lose its place as a global leader in financial innovation.

The appointment of Liz Truss as prime minister could be a fresh opportunity to set favourable regulatory conditions to promote the UK as a world-leading crypto-hub.

Bitcoin (BTC-USD) waffled around the $19,900 (£17,314) mark for the ninth straight day, and ether (ETH-USD), the second-largest cryptocurrency, was up 6.4% to $1,667.

Herbert Sim, founder of UK Venture Capital fund TheBitcoinMan.com, said "looking at the Monetary Authority of Singapore (MAS)’s policies would be a good reference point" for Truss to ensure a more crypto-friendly UK.

"As the managing director of MAS, said 'yes to Digital Asset Innovation, no to cryptocurrency speculation'," Sim said.

"This is something I agree with, that governments should balance allowing technology companies to innovate, without over-regulating and stifling innovation, and at the same time protecting and highlighting to their citizens from extreme risky investment products."

Sim added that the UK is particularly well-placed to leverage its global reputation as a centre for financial innovation to lead the way on practical regulation and a level-headed approach to regulating this market.

"Instead of trying to re-invent the wheel, the UK's robust and resilient securities laws can be adapted and shaped to deal with a new underlying asset class, without overburdening and hamstringing the unique value proposition of cryptocurrencies, especially in areas where the usual regulations would not apply."

Yahoo Finance UK looks at five reasons why the UK could become a leading hub of crypto innovation under Liz Truss.

1. UK Financial Conduct Authority holds CryptoSprint conference

Liz Truss was not the only candidate in the Conservative party's leadership race to reveal a soft spot for the controversial yet rapidly expanding crypto-ecosystem.

Throughout 2021, rival Rishi Sunak became increasingly vocal about the potential of the UK to become a centre for innovation in blockchain technology.

In April this year, the former chancellor said: “It’s my ambition to make the UK a global hub for crypto asset technology, and the measures we’ve outlined today will help to ensure firms can invest, innovate, and scale up in this country.”

At that time Sunak also outlined how the FCA would lead what he described as a “crypto sprint".

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This was followed by the FCA's first 'CryptoSprint' conference in May where the financial regulator discussed how it would attempt to balance innovation in the blockchain industry with standards that protect consumers.

The regulator is not known for being a proponent of digital asset technology, but the two-day meeting gave many in the crypto-ecosystem a more solid grounding in how the FCA will approach regulating the sector.

The conference showed that the FCA would probably take a tiered regulatory approach to crypto assets. The discussion focused on central bank digital currencies (CBDCs), stablecoins and crypto assets.

2. BlackRock uses UK crypto firm for institutional investment

American multinational investment company BlackRock (BLK) is preparing its clients for an institutional bitcoin buy-in.

The world's largest asset manager holds around $10tn in assets and even small fraction of this capital directed into the crypto-sector would see a large increase in the value of particular digital assets.

With a current market capitalisation of approximately $1tn, the cryptocurrency ecosystem is dwarfed by the stalwarts of institutional finance.

BlackRock is now offering its clients exposure to bitcoin and other blue-chip cryptocurrencies through its private BTC trust and partnership with American exchange Coinbase (COIN).

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The partnership would allow BlackRock’s institutional Aladdin clients access to Coinbase’s institution-targeted products, including Custody and trading.

In order to index bitcoin in a secure and accurate way, Blackrock is using UK-based CF Benchmarks to offer a benchmarking standard for their newly launched bitcoin fund.

The move by Blackrock shows that despite the woes of "crypto-winter", the adoption of digital assets by traditional finance has increased as institutional exposure grows.

3. UK regulation of stablecoins

In July, the UK's Treasury announced it would seek to regulate “certain types” of stablecoins as a form of payment.

A proposed set of laws enclosed within the Financial Services and Markets Bill was introduced to the lower house of the UK's Parliament in July.

The bill is designed to reform EU-derived legislation governing the UK’s capital markets and is making its way through the legislative procedure of the UK government, currently in its second reading in parliament.

The bill would official designate stablecoins for use in the settlement of payment obligations, can be transferred, stored or traded electronically, and can use technology supporting the recording or storage of data, which may include distributed ledger technology.

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Stablecoins are a key crypto asset which aims to maintain a stable value relative to other assets, the majority of stablecoins have 1:1 parity with the US dollar.

This is the first time provision for the regulation of crypto assets and stablecoins have been introduced to the UK parliament is aimed to allow stablecoins to be brought within a regulatory framework so that they could become a recognised form of payment in the future.

The first British pound-backed stablecoin was also introduced in July. The digital asset is called Great British Pound Token, or GBPT.

The cryptocurrency is backed 100% by the Great British Pound Sterling (GBP) held in bank accounts.

This means that GBPT, also known as "pound token", can be redeemed one-for-one with pound sterling.

4. UK is one of the top nations for crypto-usage and ownership worldwide

New research from Merchant Machine indicates that the UK ranks number three in the world for crypto-usage.

The data discovered that nearly 5% of the UK's population has some exposure to the market through ownership of cryptocurrencies.

The number of businesses in the UK that accept cryptocurrency as a direct form of payment is starting to grow and now stands at 23.

There are now 32 bitcoin ATMs in the UK and the monthly search volume of cryptocurrency terms has grown to 21,183, according to Merchant Machine.

5. UK financial market infrastructure sandbox

The UK has set forth legislation to create a "financial market infrastructure sandbox". This will allow crypto-firms domiciled in the UK to innovate.

In April 2022, a statement from HM Treasury said: "The government will legislate to establish a financial market infrastructure (FMI) 'Sandbox' that will enable firms to experiment and innovate in providing the infrastructure services that underpin markets, in particular by enabling Distributed Ledger Technology to be tested.

"The government further confirmed that it will initiate a research programme to explore the feasibility and potential benefits of using DLT for sovereign debt instruments."

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The UK's economy is beset by multiple stressors including the cost of living crisis, energy price hikes and surging inflation.

Recent data from the International Monetary Fund (IMF) revealed that India has now surpassed the UK to become the world’s fifth largest economy.

As factories close in the UK, one area where the UK government could revitalise the nation's economic outlook is through progressive plans to support crypto adoption.

Britain has already shown an affirmation to move in this direction with a commitment to regulate stablecoins and the British Law Commission's proposals in July to create a new classification and deliver wider recognition and legal protections for digital assets.

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