Post-COVID-19, Bitcoin & Co May Help UK Escape from Economic Funk
UK GDP slowed by almost 10% in 2020, and that there is a USD 84bn hole that needs plugging. The chances of the government embracing crypto are minimal, but some private sector players are cautiously optimistic.
After the UK’s decidedly mixed response to the coronavirus pandemic, the nation has proven something of a frontrunner in all things vaccine-related, leading it to start easing out of its latest two-month-plus national lockdown on March 8 ahead of its European counterparts – almost a year since the country began its first lockdown. (Updated at UTC 12:22 on March 15, 2022, with a correction relating to details of an interviewee’s background)
The economic story since Spring 2020 has proven to be full of woe, and last week the British Chancellor of the Exchequer Rishi Sunak delivered a budget that attempted to plug the gaping chasm in the UK economy. Included were delayed tax rises, increased government borrowing, an extension of the furlough project, corporate rates rises and yet more short-term public spending.
The budget has already been on the end of stern criticism from the influential economic think-tank the Institute for Fiscal Studies (IFS) calling some of Sunak’s measures “unanswerable,” per the Guardian.
Later, the IFS was harsher still, labeling the Chancellor “Scrooge Sunak” after the budget also unveiled government plans to slash spending in the longer term, reported the BBC.
Even ex-Prime Minister Theresa May waded into the debate. Per Sky News, May claimed that the budget had neglected the innovation and research & development sectors.
Sunak, it appears, is damned if he does and damned if he doesn’t – and it all points to a bigger problem identified last month and before – the fact that Office of National Statistics data shows GDP slowed by almost 10% in 2020, and that there is a USD 84bn hole that needs plugging, per Bloomberg.
With Brexit still driving economic uncertainty in the UK, some might argue that the country badly needs a growth engine, ideally one based on new technology, and with the power to disrupt the existing financial sector, which London ruled the roost over during the European Union era.
Some might argue that such a growth engine already exists, if the government will only be brave enough to embrace it: crypto.
Many of Europe’s biggest crypto ventures have set up shop in the UK (although some have admitted mulling a departure for the mainland in the wake of Brexit). And as the natural center of gravity for the continent’s financial activity, the UK has reaped economic rewards for centuries.
Writing in December last year, the Financial Times put it thusly:
“London is a hub for trading currencies and interest rate derivatives. Its location allows traders to catch the end of the Asian day and the opening on Wall Street. The good fortune of geography is underpinned by high-quality tech infrastructure.”
These reasons and more have helped the UK crypto industry, as well as the fintech and blockchain sectors, to grow into potential world-beaters.
Sunak himself is an investment veteran, and has considerable experience working with cutting-edge Silicon Valley companies.
In November last year, his department wrote about tweaking the “UK’s listings regime” in a bid to attract the most innovative firms,” as well as “leading the global conversation on new technologies like stablecoins and Central Bank Digital Currencies.” There is, it would seem, at least some hope for the crypto sector.
But the government stands at a crossroads. Across the pond in the USA, the UK’s closest ally, the Treasury chief Janet Yellen is still speaking darkly about crypto and its alleged crime links. Meanwhile, others are starting to reap the benefits of a more relaxed attitude – Switzerland and Singapore, for instance.
Is there any chance that British parliamentarians could follow these countries’ lead, rather than Washington’s?
Don’t hold your breath, say some.
Olinga Taeed is a blockchain-specializing professor at Birmingham City University’s Faculty of Business, Law and Social Sciences, an advisor to the Chinese government and the newly appointed Blockchain Advisor at the London Stock Exchange-listed oil and gas firm Wildcat Petroleum. He told Cryptonews.com that the chances of the government embracing crypto are minimal.
He pointed out that a few “very nascent indications in the UK of government support” had already emerged, including the All-Party Parliamentary Group (APPG) on Blockchain, chaired by the Scottish National Party MP Martin Docherty-Hughes, and comprising Conservative, Labour, and cross-bench MPs and peers. But Taeed pointed out that the group was “now over two years old.”
However, he reminded that the crypto market is worth “just now in 2021 over GBP 1 trillion [USD 1.4 trn] worldwide, with [major] exchange, Binance transacting USD 30bn [per day].” And that means crypto is little more than small fry for top-level British financiers.
“In the UK alone, the government deals with transactions of [USD 534 billion] a day in cash, so bitcoin (BTC), for example, is only a rounding error as a replacement for cash.”
And as “legacy banking systems” are already coming up with speed and immediacy solutions, Taeed stated that “there is no reason why the UK government would change their views outlined by the [regulatory] Financial Conduct Authority,” whose “view of cryptocurrency” is “less severe and more agnostic” than the American Securities and Exchanges Commission, but “nevertheless still not particularly supportive.”
Instead, he claimed that “institutional play” in bitcoin “will continue” in the Tesla mold, although “much more conservative British companies will be more hesitant to use news flow as a direct instrument.”
Of his own recent appointment, Taeed stated that it was “a sign of things to come as mainstream companies adopt these technologies.”
Some private sector players, however, are cautiously optimistic. Leanne Kemp, the founder and CEO of the UK-based, Tencent-backed crypto player Everledger pointed out that the British Treasury Department “has made bold predictions about the growth of the fintech industry, stating that the number of firms in the UK would double to 3,200 by 2030.”
Kemp said that the UK is “already a global leader in emerging technologies such as artificial intelligence, software development, IoT, climate tech and blockchain,” adding: “That’s what attracted Everledger to London when we set out in 2015.”
She added that “in our experience,” the government has shown that it is “open to supporting the scaleup of emerging technology.” She continued: “Founders want to be at the cutting edge of disruptive tech and the UK offers that.”
“Traceability of goods is a growth opportunity for the UK in a post-Brexit and post-pandemic world. Blockchain, together with other technologies like IoT, can potentially help with the passage of cargo coming in and out of the EU and Northern Ireland, and reduce freight issues at the border.”
Indeed, Kemp suggested that the UK could seize the initiative, building on a thus far successful vaccine rollout. She said,
“Blockchain and IoT solutions might also help in keeping track of vaccine and personal protective equipment (PPE) distribution, ensuring vital traceability to this key supply chain, not least as the UK starts to share billions of doses of the Oxford University-AstraZeneca vaccine with the rest of the world.”
Meanwhile, Greg Murphy, the Director of Enterprise Development at the security token platform Polymath – and the former CEO and founder of the FCA-regulated Lakeshore Capital – told Cryptonews.com that the British government and regulators “have done a great job in fostering growth in the crypto/digital asset area by being at the forefront of embracing distributed ledger technology, especially for securities.”
“[The government has] realized the democratization, compliance and efficiency benefits that can be achieved in its use in capital markets, which is promising for the industry’s growth.”
Murphy also opined that politicians and regulators have been “remarkably encouraging” by demonstrating the “foresight to investigate the adaptation of regulation for the technology, rather than forcing the application of old frameworks.”
And what of B2C operators? Some cautious positivity seems to exist here, too.
Simon Peters, a UK-based cryptoasset analyst at the investment platform eToro, told Cryptonews.com that “as investors look beyond the plight of” the pandemic, 2021 “will be remembered as a landmark year for the crypto sector and an opportune moment to have entered the space.”
Peters added that the financial giants Mastercard and BNY Mellon’s involvement in the crypto and blockchain space was “a sure-fire sign of growth potential,” and opined that “other listed companies, both in the UK and internationally, will shortly follow suit.”
Peters pointed out that, per his firm’s own research, market capitalization is still in need of a boost – and that industry players believe “improved infrastructure and greater regulatory clarity.”
“These are the objectives that will define the industry’s development in the next few years and drive crypto ever closer to mainstream adoption.”
So the question of whether Sunak and co will decide to provide this much-needed regulation and infrastructure – and take the punt on crypto – appears to remain wide open.
In normal times, a pro-business Conservative government could be expected to let businesses grow organically, and handle market-related matters with but the gentlest of touches. But these times, as Sunak, his boss Boris Johnson and others keep reminding the nation, are anything but normal.
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