The Breakdown - The UK’s New Push to Be a Global Crypto Hub

Episode Date: April 6, 2022

This episode is sponsored by Nexo.io, Arculus and FTX US.    On today’s episode, NLW explores the seeming about-face by the British government on crypto. He first explores the recent tension around a March 31 registration deadline imposed by the country’s Financial Conduct Authority (FCA) that has left many British crypto companies looking abroad. Then, he looks at news yesterday of a major push by the British Treasury to make the country into an innovation hub around crypto and digital assets – going so far as to say that they will mint an official NFT.  - From cash to crypto in no time with Nexo. Invest in hot coins and swap between exclusive pairs for cash back, earn up to 17% interest on your idle crypto assets and borrow against them for instant liquidity. Simple and secure. Head on to nexo.io and get started now. - Arculus™ is the next-gen cold storage wallet for your crypto. The sleek, metal Arculus Key™ Card authenticates with the Arculus Wallet™ App, providing a simpler, safer and more secure solution to store, send, receive, buy and swap your crypto. Buy now at amazon.com. - FTX US is the safe, regulated way to buy Bitcoin, ETH, SOL and other digital assets. Trade crypto with up to 85% lower fees than top competitors and trade ETH and SOL NFTs with no gas fees and subsidized gas on withdrawals. Sign up at FTX.US today. - Consensus 2022, the industry’s most influential event, is happening June 9–12 in Austin, TX. If you’re looking to immerse yourself in the fast-moving world of crypto, Web 3 and NFTs, this is the festival experience for you. Use code BREAKDOWN to get 15% off your pass at www.coindesk.com/consensus2022.   Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Join the discussion: https://discord.gg/VrKRrfKCz8   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW - “The Breakdown” is written, produced by and features Nathaniel Whittemore aka NLW, with today’s editing by Rob Mitchell and Eleanor Pahl, research by Scott Hill and additional production support by Eleanor Pahl. Adam B. Levine is our executive producer and our theme music is “Countdown” by Neon Beach. The music you heard today behind our sponsor is “I Don't Know How To Explain It” by Aaron Sprinkle. Image credit: Justin Tallis/Getty Images, modified by CoinDesk. Join the discussion at discord.gg/VrKRrfKCz8. 

I think this is one of the most obvious game theoretical paths for a government to take. And especially with the EU cracking down, this makes even more sense. These guys are trying to signal to the crypto markets that they are open for business and that they want to engage. Of course, as always, the devil will be in the details, but the signaling, the messaging, the marketing around this could not be clearer. Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts. remaking our world. The breakdown is sponsored by nexo.com, Arculus, and FtX, and produced and distributed by CoinDesk. What's going on, guys? It is Tuesday, April 5th, and today we are talking about the UK's

About Face and apparently their new ambition to be a global crypto hub. Before that, however, if you are enjoying the breakdown, please go subscribe to the show wherever you listen to podcasts, give it a rating, give it a review, or if you want to get deeper into the conversation. come join us on the Breakers Discord. You can find a link in the show notes or go to bit.l.ly slash breakdown pod. Also a disclosure, as always, in addition to them being a sponsor of the show, I also work with FTX. Now, before we get into our main topic today, one quick follow-up from yesterday's Elon show. Paragawal, the CEO of Twitter, tweeted this morning, I'm excited to share that we're appointing Elon Musk to our board. Through conversations with Elon in recent weeks,

became clear to us that he would bring great value to our board. He's both a passionate believer and intense critic of the service, which is exactly what we need at Twitter, and in the boardroom, to make us stronger in the long term. Welcome, Elon. So for those of you wondering whether Elon was going to have some influence or shape the way that Twitter functioned, there is your answer. He is being invited on the board of directors, which makes sense he's the biggest shareholder right now. But that is not our topic today. Today, we are talking about the United Kingdom's apparent ambition to become a global hub for crypto. Where does that come from?

Well, a headline yesterday kicked this all off. UK's finance minister Sunak, it is my ambition to make the UK a global hub for crypto asset technology. Now, to understand what's going on, we have to do a bit of background on the UK in crypto. And frankly, the relationship hasn't been that great. This has of course been to the chagrin of many, including those who see London as one of the great financial centers of the world

and the United Kingdom more broadly as a place that encourages entrepreneurialism. Well, to get a sense of where things have been, for the last few weeks, the discussion has been entirely around a March 31st deadline from the Financial Conduct Authority. By way of background, in early 2020, the Financial Conduct Authority or FCA became the anti-money laundering supervisor for UK crypto firms. 106 companies joined a temporary register over the next year by early 2021. This temporary register allowed those companies to operate in the UK

as the Financial Conduct Authority processed their larger applications for more permanent registration. Of those 106, 58 either withdrew or were rejected. 27 or 33, I've seen opposing numbers, were approved. And as of March 15th, according to the Financial Times, 21 were still under assessment. Of course, that's not a lot of time March 15th to March 31st to get to that deadline. The FCA told the financial times that they would get to all of them by the deadline, but as of last week, that wasn't looking likely to be the case. A Bloomberg piece from March 29th was called the UK faces crypto exodus, as firms sound off before FCA deadline.

The tone of this piece was pretty standard for pieces about UK crypto. Quote, The FCA has taken a tough stance on crypto regulation as demand for digital assets among retail investors spike significantly over the last two years, with only 33 firms achieving permanent registration with the body. Britain's top financial authorities, including the Bank of England and the Treasury, have stepped up scrutiny over the sector in recent months, keeping a keen eye on banks and investment firms chasing the hype around Bitcoin and other tokens. Obviously, the language here, the language, and the tone coming from the FCA is combative. Well, where this all landed is that there were about a dozen.

and firms who still had applications in come that March 31st deadline, including some very prominent names like Revolut and Copper, and they were granted an extension where they'll be allowed to continue trading. The FCA said, this is necessary where a firm may be pursuing an appeal or may have particular winding down circumstances. An FCA spokesperson said in an email, while we have registered 33 firms, we have seen too many financial crime red flags missed by the crypto asset businesses seeking registration. Worse, we have seen examples where firms do not have the controls necessary to raise red flags in the first place. Now, of course, you may remember, this isn't the first time the FCA has had words for the crypto industry. In June of last year,

they released a consumer warning on Binance. June 26, 2021, Binance Markets Limited is not permitted to undertake any regulated activity in the UK. This firm is part of a wider group, Binance Group. Due to the imposition of requirements by the FCA, Binance Markets Limited is not currently permitted to undertake any regulated activities without the prior written consent of the FCA. No other entity in the Binance Group holds any form of UK authorization, registration, or license to conduct regulated activity in the UK. The Binance Group appears to be offering UK customers a range of product and services via a website, Binance.com. Now this consumer warning about Binance also came with a general warning about crypto as well. As you might imagine, not everyone

in the UK has been happy about this state of affairs. A former UK Chancellor of the Exchequer, Philip Hammond, in a January interview, said that the UK had botched crypto. According to that interview in Bloomberg, quote, the UK has less than 12 months to regain its footing on crypto, or face a loss of talent and even its status as a global financial services leader. The country's former chancellor of the exchequer, Philip Hammond, warned. It's quote unquote frankly quite shocking that Britain has fallen behind other finance hubs such as the European Union in setting clear regulation on the burgeoning crypto industry, Hammond said in an interview. Quote, this is not the natural order of things, said the former politician who stepped down in 2019 and is now a senior advisor to copper,

a London-based crypto-custodian and trading services provider. Now, importantly, Hammond's critiques of the UK seem not to be just about it playing nicely in the crypto space. Instead, it's about a totally new plumbing for financial services more broadly. Hammond again, quote, that's the big prize. It's not about crypto assets. It's about establishing the UK as a major base for digital trading infrastructure, end quote. He went on to say that the situation had become, quote, existential for the UK financial services market, which by the way is a really big part of the UK's economy. It accounted for 8.6% of the UK's total economic output in 2020. Looking for ways to step up your crypto game? Then go with NXO. For starters, you get

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You've got the FCA who is taking a very hard line on crypto-regulation. You've got critics like Philip Hammond on the other side. And all of this was building up to what was anticipated to be a plan this week. From CNBC last week, Britain will reveal crypto regulation plans in coming weeks, sources say. British finance minister Rishi Sunak is expected to announce a new regulatory regime for crypto in the coming weeks, sources tell CNBC. Well, that's the announcement we got yesterday, and it was pretty different in tone to what we had seen before. from the official announcement page on Gov.U.K. Government sets out plan to make UK a global crypto asset technology hub.

The government has today announced moves that will see Stablecoins recognized as a valid form of payment as part of wider plans to make Britain a global hub for crypto asset technology and investment. Well, how do? What a different tone, right? Some more details from Gov.U.K. Stablecoins will be brought within regulation paving their way for use in the UK as a a recognized form of payment, introducing a financial market infrastructure sandbox to enable

firms to experiment and innovate. They're establishing a crypto asset engagement group to work more closely with the industry, exploring ways of enhancing the competitiveness of the UK tax system to encourage further development of the crypto asset market. Specifically, they say, quote, it will review how defy loans, where holders of crypto assets lend them out for a return, are treated for tax purposes. The government will also consult on extending the scope of the investment manager exemption to include crypto assets. And finally, the cherry on the cake there, quote, working with the Royal Mint on a non-fundable token, NFT, this summer, as an emblem of the forward-looking approach the UK is determined to take. The Chancellor of the Exchequer, Rishi

Sunak 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. We want to see the business of tomorrow and the jobs they create here in the UK, and by regulating effectively, we can give them the confidence they need to think and invest long term. This is part of our plan to ensure the UK financial services industry is always at the forefront of technology and innovation. Now, as you might imagine, this was pretty surprising but welcome news to the crypto industry. Cedera's Paribus has a reaction that was very similar to mine when he tweeted, this UK news is surprising because it seemed like it was just perma bad news from the UK about crypto over the years, a complete 180.

Kobe, formerly Crypto Cobain, went in on the NFT side of things saying, I am convinced that it is my destiny to be given the powers of the royal mint, and to create the first Her Majesty's NFT, I have finally made sense of the last decade, and I know now what I must do. He then created a script to allow people to tweet at the Chancellor of the Exchequer to give Kobe the Royal NFT mint power. Thank you, God Save the Queen. Crypto companies are unsurprisingly finding this super encouraging.

Jeremy Aller from Circle and USDC says very proper. promising developments out of the UK government today, with a very strong embrace of stablecoins in crypto as core to the future of the UK financial system. We are excited to continue working with the UK government. Circle first launched Pound Sterling on the blockchain back six years ago, when in April 2016 we became the first crypto company to become licensed by the FCA, enabling pounds to be sent directly over the Bitcoin blockchain. While the technology has evolved, multi-chain stablecoin protocols such as USTC and future stables, the core vision and philosophy has been the same. What was a novel and niche idea then is about to go mainstream. Now, in terms of other reactions from the industry,

there may be more for them to say in the coming weeks, as the FCA has posted about a two-day crypto sprint event May 10th and 11th. It will include, quote, technologists, cryptos specialists, academics, regulated financial institutions and consumer bodies. What they'll be doing, well, quote, specifically the teams will address three problem statements that the FCA says address key stages in the lifecycle of crypto asset firms. These include disclosing information on the issuance of crypto assets to investors, identifying and testing regulatory obligations for centralized and decentralized crypto companies, and gaps in its current regulatory framework. So even the FCA then seems to be having a change in tone, or at least an invitation in for the crypto industry. As you might have mentioned,

many commentators are seeing this as in direct opposition to Europe's closing vice around crypto. Patrick Hansen, who has been such a stalwart reporter on the situation in the European Union, tweeted yesterday, with Brexit, the EU lost its business. biggest financial hub, the city of London. Seems like the UK wants to outplay the EU with regards to crypto, too. The timing of this, just a few days after heavy public backlash against an EU vote on crypto is certainly not a coincidence. It includes a plan to pave the way for stablecoins to be used as a recognized form of payment. Wouldn't be surprised if British pound stablecoins soon had larger market caps and adoption than Eurostable coins. Tough Mika rules ahead.

Cryptotrater Munio writes, While the EU is focused on bans and innovation stifling regulation, the UK is aiming to become the global financial center for crypto. Who's moving with me to the UK? Now finally, some commentators also saw potential tensions in the UK, though, along this path. Matthew Pines compared combative statements from the Bank of England Governor Andrew Bailey with this new Treasury announcement, writing, crypto may drive a wedge between central banks who feel money is their sole province, and government treasury departments who see global competitiveness and economic innovation has a priority. interesting dynamic on display in the UK.

So a couple takes from me. Well, first, I think this is one of the most obvious game theoretical paths for a government to take. And especially with the EU cracking down, this makes even more sense. These guys are trying to signal to the crypto markets that they are open for business and that they want to engage. Of course, as always, the devil will be in the details, but the signaling, the messaging, the marketing around this could not be clearer. Another really interesting part about this for me is the officialization. of stable coins as a formal payment option. This is something I've speculated on extensively in the context of the U.S. And at what point some politician will say, hey, instead of creating an

entirely new digital dollar infrastructure, what could we adopt or use from this existing $100 billion plus USD-denominated stablecoin infrastructure that's already existing and settling billions of dollars a day? The UK embracing stablecoins makes that seem even more likely a course in the U.S. to me. Lastly, I have no idea about UK politics enough to know whether there will be a battle around this. It certainly seems like a head-spinning shift of tone, but that could just be my limited perception. Whatever the case, it does still seem like there are issues from the FCA that are causing problems for UK crypto companies. From CoinDesk, FCA Friction said to spook investors over copper's reported $500 million raise. Basically, according to three people with knowledge of

the situation, copper, which is one of those companies, remember, that got a temporary FCA reprieve, he's having trouble closing a widely reported half-billion-dollar round. One of the people said, quote, Tiger and presumably some of the other investors had wanted to make the closing process tied to the FCA approval. So some combination of downsizings or pulling out of the round happened with the investor consortium. A second person said that Excel had walked away from the deal and that Tiger had cut its intended investment to around a quarter of what was initially a nine-figure commitment. If you are the chancellor of the Exchequer and you are trying to make the UK a global crypto hub, having one of your major companies lose out on the ability to receive investment from these international firms is certainly not a good start to that process. Then again, we of course have no idea what's going on and what the issues, if there were issues with their FCA application, might have been.

But if the UK is going to be a hub, it's clearly got some work ahead of it. However, from my vantage point, the more countries that are competing, to be the best place for crypto assets, the better for all of us. For now, I want to say thanks again to my sponsors, nexus.io, Arculus, and FTX. And thanks to you guys for listening. Until tomorrow, be safe and take care of each other. Peace. Hey, Breakdown listeners, come join CoinDesk's Consensus 2020,

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