Cryptocurrencies, the influence of regulations and the impending elections are hot discussion topics in the United Kingdom. Understanding these dynamics is vital for policymakers and citizens as they navigate the evolving landscape of finance and governance.
This article explores the U.K. political landscape and its stance on cryptocurrencies, focusing on upcoming general elections, party positions, public engagement and regulatory shifts shaping the future of digital assets in Britain.
UK politics and cryptocurrencies
The United Kingdom is poised for a general election in July 2024, with major parties like Conservatives and Labour, among others, vying to contest the elections and form the next government. A poll by YouGov indicates a lead for Labour, as shown in the below chart.
Labour’s support (blue line) rose above the Conservative Party’s (white line), peaking significantly in 2022. The trend highlights Labour’s lead, with fluctuating but generally higher support compared to the Tories.
Similarly, based on FT poll-tracker data, the Financial Times’ graph below indicates U.K. voting intentions as of June 20. Labour leads with 41.9%, Conservatives at 21.3%, Reform at 15.4%, Lib Dem at 10.8% and Green at 5.8%. The lines indicate weighted moving averages, while points represent individual polls. Shaded areas depict the likely value ranges after considering sampling and industry errors. Labour maintains a steady lead, while Conservatives and other parties show lower and fluctuating support.
The cryptocurrency industry is still nascent and might not have the same level of engagement with the political establishment in the U.K. compared to traditional finance. However, this is slowly changing, with former Chancellor Philiip Hammond becoming Chair at Copper, which offers digital asset services for institutions, and former Chancellor Goerge Osborne now joining Coinbase as an advisor.
These trends will translate toward more engagement and consideration for the cryptocurrency industry’s concerns within the political corridors of power. The cryptocurrency industry does have some cross-party engagement within the parliament, like the “All-Party Parliamentary Group for Blockchain Technologies,” which exists to educate the wider parliament and government on the potential and challenges within this sector.
Are political parties supportive of cryptocurrencies in general?
Throughout the world, as with any innovation, blockchain technology brings with it the potential for economic growth, new opportunities and jobs, but also risks. The global economy is transitioning into the fourth industrial age of data and artificial intelligence (AI). Leveraging these technologies can have a significant impact on countries’ gross domestic product, prosperity, productivity and global innovation standing; however, there are serious risks for those who do not leverage these trends, including economic harm and reduced competitiveness.
Unfortunately, there has never been uniform bipartisan support for cryptocurrencies across global political establishments. Political parties either tend to be pro, indifferent or against cryptocurrencies based on their ideological leanings, and this can be clearly seen across the globe in major economies.
Despite some countries not supporting cryptocurrencies, there is a growing awareness about the potential of digital currencies and a growing cohort of digitally savvy voters for whom a stance on cryptocurrencies from parties will matter.
Are cryptocurrencies a voter issue within the U.K.?
A survey by AJ Bells reveals a growing trend among investors: More individuals are choosing cryptocurrencies over stocks. This aligns with data from the Financial Conduct Authority (FCA), which estimated that 2.3 million U.K. adults owned cryptocurrencies in 2021. The increasing popularity of cryptocurrencies is likely due to factors like increased media coverage, the introduction of exchange-traded funds (ETFs) and wider mainstream adoption.
According to the FCA’s Cryptoassets consumer research 2021, gambling and quick profit were top reasons for buying crypto from 2020 to 2021 (as indicated by the below chart), while investment portfolios and long-term savings plans gained popularity.
Similarly, the chart below illustrates changing motivations for cryptocurrency investments in the U.K. from 2020 to 2022. Gambling remains a top reason, while investment portfolio inclusion and fear of missing out persist. Notably, quick profit expectations declined, and long-term savings gained slight traction, highlighting evolving investor sentiment.
The significant interest in cryptocurrencies as part of investment portfolios and gambling suggests growing public engagement, potentially influencing voter priorities indirectly through economic concerns and financial regulation debates. Therefore, parties with a clear manifesto and support for the cryptocurrency sector could attract a segment of voters who prioritize this issue and find it significant.
A Gemini survey from 2021 showed that around 13.5% of the respondents were current (at that time) or former cryptocurrency owners, and around 41.6% of these investors were women, indicating significant interest within the general population. A Chainalysis survey to track grassroots crypto technology related adoption in 2023 includes the U.K. within the top 20 countries on their index.
Additionally, the graph below from YouGov shows the percentage of Brits who have bought cryptocurrency as of Jan. 24, 2024. It indicates that 10% have personally bought cryptocurrency (red line), 21% know someone who has bought some (purple line), 64% have not bought any (blue line), and 5% are unsure (orange line). Over time, the percentage of those who have not bought cryptocurrency has slightly declined, while the percentages of those who have bought or know someone who has bought have remained relatively stable.
Considering the overall adult population, a good majority of voters would be indifferent to cryptocurrencies; however, any manifesto or policy promises around this sector would appeal to a small segment of this digitally savvy user base.
U.K. regulations for cryptocurrencies
The City of London in the United Kingdom is one of the world’s foremost financial centers.
In recent years, the U.K. has been striving to provide regulatory clarity for the cryptocurrency sector, aiming to establish London and the U.K. as a global cryptocurrency hub.
In June 2023, parliament passed laws to recognize cryptocurrencies as a financial instrument that would be regulated by the FCA, the regulatory body for financial services in the United Kingdom. There were plans to introduce additional laws to provide clarity on stablecoins and staking in 2024, whose possibilities have now receded due to the election season.
In recent years, most cryptocurrency companies and exchanges invited to register with the FCA have not received approval, often cited by the industry as an example of a challenging operating environment.
Regulatory challenges usually mean that companies decamp to other jurisdictions, leading to a loss of talent and technical innovation that could be built within a home market. Regulators face a challenging situation, needing to balance fostering innovation with protecting consumers and upholding legal and compliance requirements.
Election manifestos and approach of major political parties in the U.K.
The current ruling conservative party doesn’t seem to have any explicit callouts for the cryptocurrency sector within their manifesto; however, it has been keen to promote the U.K. as a global hub for cryptocurrencies and has passed legislation to bring regulatory clarity and controls.
The Labour Party’s manifesto doesn’t explicitly mention blockchain technology; however, it highlights key themes like tokenization of real-world assets (RWAs), open banking, open finance and central bank digital currencies (CBDCs) as areas it would support and drive to increase financial inclusivity.
Other parties, such as the Liberal Democrats, SNP, Reform UK and the Greens, do not appear to have specific manifesto pledges for the cryptocurrency sector.
Post-Brexit impact on cryptocurrencies
The U.K. and London have long been leading financial services hubs within the European Union. Post-Brexit, a key goal for U.K. governments has been to protect and maintain this position.
Here are some examples of where the U.K. cryptocurrency industry would need support to compete with the EU post-Brexit:
- Attracting talent from the EU, where in the past, a lot of EU-based founders would have looked at the U.K. as a viable option to build a cryptocurrency company.
- EU regulations around cryptocurrencies could impact U.K. businesses.
- EU countries with more favorable cryptocurrency regimes and regulations can attract new business.
- Funding and grants provided by the EU to innovative companies within the blockchain space.
The EU has set up the Markets in Crypto-Assets (MiCA) regulation to take effect in 2024. The EU has introduced comprehensive regulations to manage cryptocurrencies. Though these regulations are viewed as strict and challenging from a compliance perspective for firms, they provide regulatory clarity. As a first mover, the EU gains an advantage by setting norms that will be difficult for other major economies, including the U.K., to deviate from.
The U.K.’s ambitions with a CBDC and its implications
The U.K. is one country with clear ambitions to explore a CBDC, called the digital pound. It’s still in an evaluation phase, and the Bank of England (BoE) is transparent about how to differentiate it from a cryptocurrency.
In 2023, the BoE released consultation and technology papers that explored the potential development of the digital pound and sought public opinion on its design and implementation. While underlying architecture and technology are still being evaluated and ultimate decisions rest with the parliament, many civil liberties advocates are concerned about the introduction of a centralized digital currency, citing potential impacts on individual privacy and liberty. A poll for Politico conducted by Redfield & Wilton that surveyed 2,500 adults captures this sentiment well.
Is the U.K. considered crypto-friendly?
The financial sector is a huge contributor to the U.K. economy, and since cryptocurrencies promise to either disintermediate or improve efficiency within this sector, among other use cases, the sector should be of key importance to policymakers. This is to ensure that the U.K. continues to be at the forefront of adoption of new innovation and supporting its financial sector.
However, the general perception within the industry is mixed. Retail users often encounter negative experiences with traditional financial institutions regarding cryptocurrencies. Many banks actively block users from conducting cryptocurrency transactions and impose additional challenges on managing accounts involved in such transactions.
Countries like Germany, Switzerland, Malta, Portugal, Singapore, the Netherlands and the United Arab Emirates are perennially cryptocurrency-friendly regimes and are magnets for companies, businesses and individuals who trade or build within this sector, and the U.K. is generally missing from this list so far.
Exchanges face restrictions on the products they can offer to users in the U.K., reflecting a cautious regulatory environment concerning cryptocurrencies. Regulators must strike a delicate balance between encouraging innovation and safeguarding consumers and the integrity of the financial system.
Overall, it’s a fair perception from the industry that the U.K. still has some way to go to stand by its aspirations to position the U.K. as a global cryptocurrency asset and innovation hub.
Written by RK Subramanian