Following the dramatic, if not unexpected, resignation of former Chancellor of the Exchequer Rishi Sunak, the future of the UK’s crypto economy has been called into question.
Sunak has talked up Britain’s crypto potential in recent months after outlining a framework “to make Britain a global hub for cryptoasset technology and investment”.
The ex-chancellor went as far as commissioning the Royal Mint to create an NFT by the summer of 2022.
To what extent these ambitions have been put on hold is unclear, particularly given the likelihood of Sunak pitching for the top government position following Prime Minister Boris Johnson’s dramatic — if less unexpected — resignation on Thursday.
But despite the inevitable shake up of the cabinet in the coming months, the future of Britain’s nascent crypto economy faces another major hurdle.
Rather than a lack of political willpower, misalignment between the political class and the regulators could prove a significant roadblock to making the UK’s financial services sector a globally competitive player.
Sunak has already clashed with the Bank of England over crypto payments, after he proposed the introduction of new laws that would make stablecoins a recognised form of payment.
The Bank of England wants the opposite; the central bank’s Financial Stability Report published in July 2022 called for stricter regulation of “so-called” stablecoins, arguing that “some stablecoins held to be used for payments may not offer similar protections to central bank or commercial bank money”.
The central bank, in its defence, has good cause for concern, given the extreme market volatility witnessed in 2022 and the multibillion-dollar collapse of algorithmic stablecoin TerraUSD.
Terra’s death spiral was a travesty not just for customers, some of whom lost millions, but for the entire crypto ecosystem which saw over one trillion dollars wiped from the market.
The BoE is justified in taking these events as a cause for concern.
Uncertainty is likely to persist as the government and regulators attempt to mete out a compromise and the fallout of mass cabinet resignations becomes clearer.