Breaking the Deadlock: Analysis of Cryptopolitics and the General Election

This analysis, co-authored by Zoe Wyatt, Partner and Head of Web3 & Disruptive Technology at Andersen LLP, and Dion Seymour, Crypto and Digital Assets Technical Director at Andersen LLP, examines the impact of the election on the UK crypto industry

Is crypto an election issue?

In the UK, crypto is unlikely to be an election topic, unlike in the US, where we saw crypto discussed for the first time in a US presidential primary debate. The political environment in the US could not be more different from the UK. Donald Trump has endorsed crypto and presented himself as a crypto champion[1]. If elected, it could be significant for the US crypto community. Trump is no stranger to crypto, with the former president even creating his own NFT collection, “Trump Digital Trading Cards,” to little criticism. This is in stark contrast to the scorn received by Labour’s Rishi Sunak, who branded the Royal Mint NFT a vanity project.[2].

Recent funding from the crypto sector for US lobbying has reached more than $115 million. Crypto firms are increasingly pushing into the political scene through advocacy groups such as Coinbase’s “Stand With Crypto,” which was founded in the US and recently launched in the UK. Notably, Coinbase also recently hired former chancellor George Osbourne. The UK’s lobbying landscape is markedly different: despite remaining important to retail and institutional investors, the main election campaigns are elsewhere, and crypto is not making the headlines.

Once an election is called, the civil service goes into “purdah”, a period in which policy statements and ministerial decisions will not be made (since technically there are currently no ministers). This has an effect on any current policy progress.

What have the conservatives ever done for crypto?

In early 2018, following the crypto peak of 2017, the government established the “Cryptoasset Taskforce” consisting of the FCA, HM Treasury and the Bank of England. That didn’t stop the Treasury Select Committee (TSC) from publishing a report in 2018 that called for regulation of the “wild west” of cryptoassets and was highly critical of the government and the regulator.

Before 2022, there was no real ministerial drive regarding crypto, neither trying to ban it nor support it (both approaches have been seen elsewhere). The Cryptoasset Taskforce report was relatively neutral, and the various government departments continued with the status quo.

That all changed on April 4, 2022 when the government announced its desire for the UK to be a global hub for cryptoasset technology[3]. Rishi Sunak, in his previous role as Treasury Minister, was very much the driving force. This has created greater engagement with parliamentary groups on crypto and blockchain, such as several parliamentary groups from all parties advocating for crypto in parliament. Inside Parliament, groups like the TSC tried to disrupt progress, but no efforts were made to ban crypto.

Even with a relatively permissive parliament, the UK government has failed to become a global crypto hub. We believe that the government recognizes that there is still work to be done. On 1 February 2023, the government outlined plans to provide clarity for consumers and businesses and the changes needed to achieve crypto hub status[4]. It was still actively working on this when the election was called.

It was not without problems. There have been, and remain, numerous obstacles in the way of becoming a crypto hub. Perhaps the most significant issue for crypto owners (individuals and businesses) is the inability to access the UK’s banking network. Many banks have either decided not to provide accounts to crypto customers or have removed them. Banking services are the lifeblood of any business. But that’s not all. As the FCA has operational independence, it can decide what it thinks is best for consumer protection, which may not be in line with the Government’s view. To date, the FCA has given only 47 firms permission to operate. These aspects held the UK back, and there was a general lack of progress compared to contemporary jurisdictions. A “crypto hub” the United Kingdom is not.

What does the election mean for crypto?

Despite the Conservatives’ crypto-hub push, their manifesto doesn’t mention crypto. The same goes for the Lib Dems, and we are still waiting for the Labor manifesto. This is understandable, as crypto is a niche topic that is still poorly understood. This leaves any position (positive or negative) open to criticism during campaigns with limited political gains available, discouraging crypto as a topic of interest for either current or prospective MPs.

However, in its current state, it is actually useful for crypto, as it is not a partisan issue. As crypto is not a central policy for the Conservatives, a Labor victory may not derail the ongoing work.

In the run-up to the election, Labor Party members consulted with industry policy leaders and trade groups, such as UKCBC and CryptoUK, to understand the UK’s current crypto environment. While silent on legislation, they have privately supported the tokenisation of real assets and the Bank of England’s plan for a digital pound.

Since the current conservative administration is positive towards crypto, it would be strange for a government led by Rishi Sunak to show their direction so far. On the Labor side, there has been no indication of plans to ban crypto, limit ownership or make fundamental changes to the current status quo. However, Nigel Farage has come down on the side of crypto since the surprise start of his campaign for Reform.[5].

What does the future hold?

A change of perspective can bring positive opportunities, and as crypto becomes less mysterious, politicians of all stripes may find the subject more palatable.

However, some of the problems were out of the Government’s hands, such as the lack of access to banking services (which is decided by the banks) or how the FCA applies its mandate for consumer protection, such as the retail ban on ETPs and derivatives. Contrary to popular belief, even the Government cannot “just make it happen”. Therefore, for things to change, it may require more affirmative action, such as new laws/regulations or codes of conduct. In the absence of this, it is unlikely that we will see any significant change to the current problems that the crypto sector is experiencing.

[1] https://www.reuters.com/world/us/trump-pitches-himself-crypto-president-san-francisco-tech-fundraiser-2024-06-07/

[2] https://www.bbc.co.uk/news/uk-politics-65094297

[3] https://www.gov.uk/government/news/government-sets-out-plan-to-make-uk-a-global-cryptoasset-technology-hub

[4] https://www.gov.uk/government/news/uk-sets-out-plans-to-regulate-crypto-and-protect-consumers

[5] https://www.fnlondon.com/amp/articles/nigel-farage-calls-for-uk-crypto-push-as-reform-campaign-kicks-off-7e5fdfb4