U.S. Approves Bitcoin Spot ETF, U.K. Undermines ‘Cryptocurrency Hub’ Vision

In the midst of the world’s enthusiastic acceptance of Bitcoin, measures being implemented in the United Kingdom have inadvertently led to an exodus of crypto-related businesses. While the U.S. has made progress in institutional adoption by allowing entities such as BlackRock to support Bitcoin products, the U.K.’s strict regulations have stifled domestic companies.

This represents a policy contradiction that has drawn widespread criticism and runs counter to Prime Minister Rishi Sunak’s vision for the UK to become a “cryptocurrency hub”.

As a recent article in the Financial Times emphasized, “The launch of the much-anticipated Bitcoin ETF in the US has left the UK out of step with some other major markets in maintaining a block on retail access to exchange-traded crypto funds.”

Many companies have relocated to more cryptocurrency-friendly environments, highlighting the difference between the UK’s restrictive stance and the progressive measures of other major players.

Background to the new regulations

In October 2023, the UK’s Financial Conduct Authority (FCA) implemented sweeping new regulations categorizing Bitcoin and other cryptocurrencies as “restricted mass market investments.”

As the FCA recognizes, this goes against the advice of most industry insiders, who warn that different assets have different risk profiles and should not all be lumped together. The new rules include the implementation of cooling-off periods and rigorous customer suitability tests, with firms initially setting a January 8, 2024 deadline for compliance.

The aim is to bring transparency and security to the market while protecting consumers from the inherent risks associated with these high-risk investments. This involved ensuring that the company’s marketing strategy was clear, fair and not misleading. The results have been far from clear, and in some cases actually appear to have increased rather than reduced consumer harm, leading to criticism from industry experts and stakeholders.

Initially, companies had a six-month window from the release of the “near-final” legislation in May 2023, with a target implementation date of October 8th. However, this deadline is actually two months shorter than the original December 8 deadline.

Concerns that rushed compliance measures could jeopardize customer funds led the FCA to extend the October 8 deadline to January 8, and firms struggled to meet evolving compliance requirements in the limited time available.

Despite the three-month extension of the deadline, the FCA’s approach still leaves many consumers and businesses in limbo, especially since the regulation requires retail investors not to invest more than 10 percent of their net worth in high-risk investments such as crypto assets.

Photo illustration by Jonathan Raa  Kaspa Miner

Industry Voices: Implications

Jamie McNaught, CEO of the UK’s FCA-regulated exchange Solidi, provides details. mcNaught points out the negative impact these regulations will have on consumers and emphasizes that honest consumers now have limited options.

In an exclusive interview, McNaught revealed, “Clients will either have to sell their crypto assets before the deadline, potentially incurring huge capital gains tax, or lie on their applications.”

On Wednesday, January 10, 2024, the U.S. Securities and Exchange Commission (SEC) approved the Bitcoin Spot ETF, allowing institutional participants such as BlackRock to offer products listed on stock exchanges that are backed by Bitcoin directly on a one-to-one basis. In the same week, the United Kingdom implemented strict regulations that severely limit the purchase of Bitcoin. This seems like a particularly regressive move when the leading market in the space, the United States, has taken such a progressive step.

The FCA’s strict regulations will hinder access and innovation. We’ve already seen a number of companies pull out of the UK or announce that they will no longer serve UK customers, making a mockery of the UK’s ambition to become a “cryptocurrency hub”.

This is the stated policy of Chancellor Rishi Sunak, and has been reiterated by a number of HM Treasury Economic Secretaries, that new startups are unable to set up in the UK due to these barriers, and that many cryptocurrency firms are relocating to more cryptocurrency-friendly environments such as the UAE or Switzerland. Retail investors face additional hurdles, and obtaining a business bank account for cryptocurrency-related activities is nearly impossible.

Ark Invest on January 10, 2024 in Paris, France. The first U.S. bitcoin ETF will be authorized…

Image credit: GETTY

Guy Turner is the co-founder of The Coin Bureau and runs a well-known online platform with 2.4 million subscribers. The platform is highly regarded for providing comprehensive educational content on Bitcoin, cryptocurrencies and financial news.

Originally founded in the UK, Turner relocated in 2022, as revealed in this exclusive Forbes article. The move comes as a result of the challenges of obtaining banking services within the U.K. “As a media entity, we neither issue, trade nor sell” any cryptocurrencies; our sole focus is to discuss and report on the industry. Recognizing the changing regulatory environment in the UK, we made the strategic decision to move to a more cryptocurrency-friendly environment in Dubai,” he said.

As Guy Turner rightly points out, “investor asset protection should be taken seriously and the high-risk nature of digital assets should be emphasized. But telling people how much of their money they can invest in a certain asset class is a bit much and wrong.” In any case, it may not be enforceable. Anyone in this country can walk into a bookie and lose their shirt in a matter of minutes without having to ask any questions.” BTC Asic Miner

Freddie New, Head of Policy for Bitcoin Policy in the UK, said, “It is very unfortunate that after consulting with industry experts in this highly complex and novel area, the FCA has largely ignored the advice they received. I fully support the effectiveness of regulation in reducing customer harm. However, the FCA chose to ignore detailed feedback from across the industry, which in turn raised concerns. The UK now faces the risk of losing market share on the global competitive stage. UK citizens may turn to unregulated firms to buy Bitcoin and other less secure crypto assets, putting them at greater risk than if the FCA took a more nuanced approach.”

Impact of UK Cryptocurrency Regulations

The UK’s approach to cryptocurrency regulation, which aims to protect investors and create a safe investment environment, has resulted in unintended consequences. It has led to an increase in customer harm characterized by the loss of banking infrastructure as well as a decrease in investment and employment opportunities. This strategy imposes short-sighted restrictions on access to a potentially lucrative asset class while discouraging innovation.