The UK Chancellor of the Exchequer’s plans to make Britain a ‘global hub’ for crypto assets should be championed. But he is also missing a golden opportunity in putting the country on a path to becoming a true a world leader in the booming cryptocurrency space.
On Monday, the Treasury announced its intention to recognise stablecoins (digital assets pegged to a currency) such as the US dollar, in the case of Tether, the most widely adopted token of its kind.
Stablecoins’ name highlights the idea that the peg supposedly makes them less volatile than cryptocurrencies such as Ethereum or Bitcoin, which can vary widely in value.
“It is 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,” Rishi Sunak said.
He added that embracing crypto assets will ensure that the UK’s financial services industry is “always at the forefront of technology and innovation”.
“By regulating effectively we can give them the confidence they need to think and invest long-term,” Sunak continued, adding that the Treasury will work with the crypto industry to develop a framework for the regulation of some stablecoins.
When a stablecoin is established, there is a reserve for the assets, which are held as collateral. However, there has been controversy in this regard too in recent times.
In October last year, Bloomberg reported: “Exactly how Tether is backed, or if it’s truly backed at all, has always been a mystery.
“There are now 69 billion Tethers in circulation…That means the company supposedly holds a corresponding $69 billion in real money to back the coins – an amount that would make it one of the 50 largest banks in the US, if it were a US bank.”
As such, greater regulatory scrutiny of stablecoins should be welcomed as it will help give greater investor confidence to the wider token economy.
However, I think Sunak and the Treasury should and could go further. As digital currencies, including cryptocurrencies such as Bitcoin and Ethereum – not just stablecoins – play an ever greater role in the mainstream financial system, there’s no question that regulation is necessary and the UK could lead the way.
Previous examples, such as Japan and Australia, suggest countries that become crypto-friendly reap economic rewards through innovation, investment, jobs and taxes.
In addition, robust regulation will help protect both retail and institutional investors, help combat cryptocurrency criminality, and reduce the potential threat of disrupting financial stability.
Truly becoming the global hub of all things crypto, which means becoming an international leader in setting up an oversight framework, could be key to the UK’s long term economic prosperity – and Sunak should seize this opportunity.