Sunak must welcome Bitcoin into the financial markets with its core principles intact
Mainland Brits often joke about their expat compatriots in Gibraltar, saying that watches have to be turned back 20 years when you’re there. Gibraltar has always been a popular target for condescension. Yet this supposedly “backward” place has been consistently ahead of the curve on Bitcoin adoption and regulation. In 2018, the territory was the first jurisdiction to launch a legal and regulatory framework for Bitcoin. Last week, it unveiled a long list of measures designed to protect market integrity.
Gibraltar is fast becoming a world leader in crypto, and as such the Chancellor should look at it very closely, if he truly wants to turn the UK into a global home for these currencies.
Gibraltar gives the lie to many commonly cited falsehoods about Bitcoin. There’s a fear around Whitehall -and in other corridors of power around the world – that crypto is still in its Wild West period, and that Bitcoin investors and startups are only drawn to the most lawless, laissez-faire jurisdictions.
But Gibraltar’s latest move is not about loosening existing financial regulations, it’s about toughening them up. The proposals address some of the last remaining concerns about Bitcoin’s acceptability to the world’s politicians, markets and, of course, bitcoiners themselves.
Most prominently, the new regulations are about strengthening the integrity of the markets in which Bitcoin operates. In its new guidance for crypto firms, Gibraltar’s Financial Services Commission warns operators that they must combat “manipulation or improper influencing of prices, liquidity or market information, or any other behaviour, which is inimical to market integrity.”
To make the UK the destination of choice for Bitcoin entrepreneurs and investors, Rishi Sunak must understand that Bitcoin can’t be completely tamed: it’s already too big, too strong, and too decentralised for any actor to impose their regulatory whims. Just look at what happens when countries like China try to clamp down on Bitcoin: miners simply move to friendlier territories like El Salvador or Ukraine, taking innovators and investors with them.
But nor is the answer to follow Bitcoin exceptionalism and sweep away all the laws and regulations that govern the rest of the financial system. Bitcoin may exist entirely outside the traditional, fiat ecosystem, but it still operates as part of a wider financial marketplace, with increasing interactions between the old and new worlds of money.
As the saying goes, you can’t have the milk without the cow: you can’t attract Bitcoin businesses without the right blend of incentives and rules-based certainties. What’s more, sensible regulation is key to showing the market that the Chancellor wants to introduce rules that will ultimately make Bitcoin stronger.
To make the UK a crypto hub, what we need above all is smart legislation. For example, Sunak can show that Britain is open for business by providing assurances that he will pursue light-touch regulation, even if it puts him at odds with the sceptics in Threadneedle Street. He could follow in Portugal’s footsteps, going for a zero per cent capital gains tax structure.
Even more important is continuity. By creating a firm and unbending policy framework that will guide future Chancellors, Sunak will create peace of mind for investors. That can only be possible, however, if the Treasury and regulators make a real effort to understand Bitcoin, and develop rules – as Gibraltar is doing – that tackle real problems within the space.
Ultimately, it’s not tax breaks or freeports that will bring Bitcoin investors and entrepreneurs flocking to the UK: it’s the knowledge that the government understands the field. Sunak must engage the community, and ask what challenges people are facing in this space. For a legal framework that will underpin a new era of prosperity and freedom for all, he has to look no further than the Rock of Gibraltar.