01
May
2023

In The Game of Crypto U.K Reigns Supreme

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TL:DR

  • The U.K. has taken a more balanced and favorable approach to regulating the crypto industry compared to the U.S.
  • U.K. investment firm a16z and Polygon Labs praised the U.K.’s approach to regulation as more “nuanced” than the U.S.
  • The U.K.’s proactive approach to regulation has positioned it as an attractive destination for crypto firms, while some American crypto companies are moving their businesses offshore due to increasing regulations.

Praise for the UK

The U.K. has taken a more measured approach to regulating the crypto industry, as opposed to the U.S.’s heavy-handed approach. In February 2023, the U.K. laid out its first rules for regulating the industry in a consultation paper, aimed at regulating crypto exchanges similarly to traditional finance venues.

This has been commended by crypto companies, including a16z and Polygon Labs, who have praised the U.K. government for its “proportionate and focused, agile and flexible” regime. In contrast, U.S. policymakers have faced criticisms for stifling innovation and confusing regulations, with companies warning against adopting similar approaches.

The U.K.’s approach has not only won praise from crypto companies, but also from investment firm Franklin Templeton. The firm announced that its Nasdaq-listed OnChain U.S. Government Money Fund would use Polygon blockchain to be more compatible with the digital ecosystem. The firm’s decision to bet big on Ethereum has been seen as an endorsement of the U.K.’s efforts to become a global crypto asset technology hub.

In contrast, the U.S.’s heavy-handed approach has resulted in crypto companies looking to expand overseas, with America’s biggest crypto exchange, Coinbase, actively seeking to rapidly expand overseas. The U.S.’s Securities and Exchange Commission has aggressively gone after major crypto brands to urge compliance, resulting in Kraken, Bittrex, and Coinbase being targeted for allegedly selling unregistered

 

 A Balanced Approach

After years of unregulated trading, the crypto industry is finally seeing a global push for regulation. The U.K. has become one of the few countries to take a more balanced and thoughtful approach to crypto regulation. This approach has gained a lot of attention, with a16z and Polygon Labs praising the U.K. Treasury for its more nuanced approach to crypto regulation, unlike the U.S. policymakers. These companies asked U.K. regulators to avoid adopting the U.S. approach to regulation.

In February, the U.K. laid out its first rules to regulate crypto. The Treasury wants to regulate crypto exchanges like other traditional finance venues. a16z’s head of policy, Brian Quintenz, tweeted on Monday that the firm “enthusiastically embrace[s] the U.K.’s approach for a ‘proportionate and focused, agile and flexible’ regime.” The investment firm looks forward to working with the Treasury to establish world-class rules that will protect consumers and allow the crypto industry to flourish. Polygon Labs also responded by saying it was “incredibly encouraged” to see the U.K. making steps to regulate the industry.

The regulation of “unbacked cryptoassets”—cryptocurrencies that have no specific backing, like Bitcoin—is an area where there is no consensus. In this regard, Polygon Labs made suggestions to the U.K. Treasury. In particular, the company suggested that unbacked cryptoassets should be treated differently from coins and tokens that have a team working behind the tech or have their value tied to other assets.

Stark Contrast

The U.K. has made it clear that it wants the country to become a “global crypto asset technology hub,” and Coinbase boss Brian Armstrong also last month said that the U.K. was “moving fast on sensible crypto regulation to both drive economic growth and consumer protection.” This proactive approach by the U.K. has positioned the country as an attractive destination for crypto firms.

In contrast, the U.S. regulatory environment for crypto has been characterized by confusion and heavy-handedness, causing some American firms to move their businesses offshore. The American regulatory agency, the Securities and Exchange Commission (SEC), has gone after major crypto brands to urge compliance. Under SEC Chairman Gary Gensler, the SEC has gone after American crypto exchanges Kraken, Bittrex, and Coinbase for allegedly selling unregistered securities. Republican politicians think that regulators are forcing tech offshore, while the Biden White House sees crypto as more of a threat than an opportunity.

Some American crypto businesses, or even traders, have had to move offshore to avoid the increasing regulations from banking regulators, which is becoming harder for them to operate in the country. Even Franklin Templeton, one of the world’s largest asset managers with $1.4 trillion under management on behalf of clients, has moved one of its funds to the Polygon blockchain, indicating the growing demand for crypto asset investments outside the U.S.

The attitude of the U.S. government toward crypto has been described as ill-informed and counterproductive by experts. The U.S. regulators have tried to drive crypto out of the financial system using antiquated laws. The dismissive attitude toward crypto is an insult to the millions who use crypto, according to some experts.

While the crypto industry is in its infancy, it has already shown significant promise in solving real-world problems. For example, it has enabled people in developing countries to protect their purchasing power from very high inflation. NFTs have given artists new ways to earn a living and interact with their fans. Stablecoins have made more efficient cross-border payments possible for businesses.

However, the crypto industry’s tendency toward speculative excess and the tendency to rally behind outspoken leaders who turn out to be criminals and psychopaths like Sam-Bankman-Fried has been criticized.

The lingo

The crypto community also tends to have its own unique language, which can make it difficult for outsiders to understand what they’re talking about. Terms like “HODL” (hold on for dear life), “FUD” (fear, uncertainty, and doubt), and “moon” (a term used when a cryptocurrency’s price skyrockets) can be confusing to those not familiar with the crypto space.

Despite the challenges and controversies surrounding crypto, there is no denying that it is becoming more mainstream. Major companies like Tesla, Visa, and PayPal have all made significant investments in cryptocurrency, and governments around the world are starting to take notice.

The U.K. is one such government, and according to recent reports, it is taking a more favorable approach to crypto regulation than the U.S. Investment firm a16z and Polygon Labs are among the latest companies to praise Britain’s approach, which they see as more “nuanced” than the heavy-handed approach of American regulators.

In a recent tweet, Head of Policy at a16z, Brian Quintenz, said the investment firm “enthusiastically embrace(s) the U.K.’s approach for a ‘proportionate and focused, agile and flexible’ regime” and looks forward to working with the U.K. Treasury to “establish world-class rules which will protect consumers and allow this innovation to flourish.”

Polygon Labs, which is behind the Polygon blockchain network and the 10th largest cryptocurrency, MATIC, also praised the U.K.’s steps towards regulation, suggesting that “unbacked cryptoassets” should be “treated differently” from coins and tokens with backing or other asset ties.

This comes in stark contrast to the U.S., where regulators have been aggressively targeting major crypto brands for noncompliance. The SEC, under Chairman Gary Gensler, has gone after American crypto exchanges Kraken, Bittrex, and Coinbase for allegedly selling unregistered securities. As a result, many American companies are looking to rapidly expand overseas, with Coinbase CEO Brian Armstrong even going so far as to say that the U.K. is “moving fast on sensible crypto regulation to both drive economic growth and consumer protection.”

However, not everyone is happy with the U.S.’s crackdown on crypto. Some politicians feel that regulators are forcing tech offshore, and if that’s the case, the U.K. is ready to welcome in any crypto companies that may become displaced.

The overall sentiment seems to be that the U.K. is taking a more progressive and nuanced approach to crypto regulation than the U.S., and as a result, it is quickly becoming a hub for crypto innovation. While there are still challenges and controversies surrounding the technology, it seems clear that the crypto space is here to stay, and governments around the world will need to adapt to the changing landscape.

 

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