Out with the oligarchs. In with the cryptogarchs.
That is certainly how it came across. One minute the UK government, in line with western policy towards Kremlin-linked business figures, was imposing stiff sanctions on the likes of Roman Abramovich and Mikhail Fridman, effectively ending an era of ingratiating such Russian billionaires. The next it was throwing its weight behind “UK Crypto”, an effort to “seize the capitalist energy” of the City of London and make the UK a “hospitable place for crypto”.
Not since El Salvador took the contentious and unprecedented decision to adopt bitcoin as legal tender last year has a government rolled out a red carpet for crypto with such panache.
This portrayal is, of course, a little unfair. Last week’s unveiling by the Treasury of its plans to embrace a crypto ecosystem is cautious, once you read the small print. There is much talk of effective regulation. There is an emphasis on stablecoins — those supposedly anchored to old-world currencies such as the dollar — rather than Wild West bitcoin or ethereum. And the greatest enthusiasm seems directed at the architecture that underpins crypto, so-called distributed ledger technology such as blockchain, which has widespread support.
The government is quite right to be expressing support for innovation and cutting-edge technology. As long as the frameworks are thought through, making the UK a magnet for digital investment is a laudable policy — and a crucial one if the City is to retain its prowess in international finance.
Some aspects of the crypto landscape may genuinely fulfil some of the stated benefits, such as greater efficiency, though problems scaling blockchain have been persistent, and the long-made criticism still applies: this is a technology looking for a problem, rather than a much-needed solution.
But merits aside, the look last week was not a good one. Chancellor Rishi Sunak’s enthusiastic embrace of so-called non-fungible tokens, as he urged the Royal Mint to develop an NFT to sit alongside its suite of collectable commemorative coins, was particularly ill-judged.
Wanting to strike a cutting-edge image is all very well. But NFTs — the art world’s incarnation of crypto — are as insubstantial a mania as any since the tulip bulb madness of 17th-century Holland. By connecting himself so personally to the concept, the chancellor is taking as big a punt as any NFT investor (even if the risk of that association has been trumped in recent days by the mounting row over his wife’s tax status).
The government says it wants to be “in on the ground floor” of this nascent market so that it can “lead the way”. Yet plenty of other countries, from Singapore to Spain, have been earlier adopters of crypto policies. To date, the UK has been shockingly slow to curb dubious practices. Promised legal changes to give the Financial Conduct Authority powers over misleading crypto advertising have yet to materialise. Nothing of note has been done to tackle social media misinformation.
During my multiple visits to British secondary schools in recent months, as part of the FT’s Financial Literacy and Inclusion Campaign, students have frequently asked questions about crypto investment. Many have felt encouraged to buy crypto by social media influencers. Many have lost large sums. Few have really understood what they have been doing, or the risks involved. Cracking down on social media “pump and dump” abuses, and forcing crypto operators to explain risks clearly, would be an admirable government initiative — but launching a chummy campaign for the industry, and endorsing it with its own NFT is hardly that.
FT Financial Literacy and Inclusion Campaign
At the same time the crypto cult exudes an oligarch-like arrogance. It is ruinously wasteful of energy, clashing head-on with the government’s supposed green credentials. It has a casual attitude to tax liabilities, largely unchallenged by HM Revenue & Customs. (The FCA estimated there are 2.3mn crypto investors in the UK, but HMRC has sent capital gains tax “nudge letters” to barely 8,000.)
Full-on bitcoin aficionados, of course, might argue that this is core to crypto’s raison d’être: it was conceived as an anarchic revolt against the state’s control of the monetary system. Sure enough, at a Miami conference last week, tech entrepreneur Peter Thiel hailed crypto as a “revolutionary youth movement” against the “finance gerontocracy”. So its use — as a wildly speculative punt and an anonymised means to pay for illegal drugs, launder money or evade sanctions — is maybe natural enough.
Such talk would, you might think, make the Treasury wary. Instead, it seems blinded by the bling. In the aftermath of the 2008 financial crisis, Adair Turner, then chair of the now defunct Financial Services Authority watchdog, memorably lambasted much of the finance industry as “socially useless”. How much more fitting is that description of today’s crypto craze?
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