The Future of Cryptocurrency after Brexit
As Brexit approaches, the UK braces to deal with the aftermath of what is perhaps the most significant event in its recent history. While MPs are scrambling to reach agreement on Brexit on the nation’s exit from the European Union, the public is trying to figure out what implications the move will have for the future. There is certainly no shortage of gloom-ridden prognoses out there, but for all negative sentiment, there is at least one area, where Brexit can turn out to be advantageous for the UK. I’m talking about blockchain and cryptocurrency.
Cryptocurrency Regulation Post Brexit
The European Commission has shown that it sees blockchain as an important technology that can help efforts to develop a single digital market. But while the executive body of the EU recognises the technology’s potential, its approach toward regulating the sector – in particular, the insistence on developing a EU-wide framework – might be too slow and cumbersome.
Some observers believe that Brexit will present an opportunity for the UK to gain lead on the European Union in the nascent cryptocurrency sector. Herbert Sim, chief commercial officer at Malta-based firm Cryptology, said last November that exiting the bloc would free the UK from the EU’s “bureaucratic processes”, which “can be desperately slow”.
Mike Rymanov, chief executive officer of Digital Securities Exchange (DSX), has echoed this sentiment.
“While the EU looks to apply regulation at an EU level, taking it out of the control of member states, Britain could be free to apply its own rules and shape itself to become a well regulated and crypto friendly, market that looks to nurture the future of this financial movement rather than eye it with an air of suspicion and cynicism,” Rymanov said last year, as quoted by Express.co.uk.
It is certainly possible for a country to tackle blockchain and cryptocurrency on its own within the EU and Malta is a prime example of this. The island nation has been actively working toward establishing itself as a blockchain haven, with its efforts including developing a robust regulatory framework for the sector. Last year the Maltese parliament passed three bills designed to ensure blockchain regulation in the country – Malta Digital Innovation Authority Act, the Innovative Technological Arrangement and Services Act, and the Virtual Financial Asset Act. Nevertheless, the country’s position as a EU member puts it at a disadvantage, when it comes to the crypto sector, according to DAG Global chief executive officer Sean Kiernan.
“The U.K. is better positioned to adopt Blockchain and implement the necessary regulations post Brexit compared to other EU nations, such as Malta, having to deal with the EU as it seeks to introduce overarching blockchain regulations will be a big speed bump, priming the U.K. to be in a better position in the long run as it moves its markets forward independently,” Kiernan said, as quoted by Forbes.
UK Free to pursue its own approach in Crypto Market
One look at Switzerland can give us a hint at what cryptocurrency regulation in post-Brexit Britain might be like. A non-EU country itself, Switzerland has demonstrated far greater willingness to embrace blockchain and crypto than many of its EU counterparts. The country’s markets watchdog, the Financial Market Supervisory Authority (FINMA) oversees the cryptocurrency exchanges operating in the country. The watchdog was also among the first in the world to make steps toward regulating the controversial ICO (initial coin offering) sector. Unlike some countries like China and South Korea that have banned the practice outright, Switzerland has published guidelines in an attempt to define and classify token sales under country’s existing financial laws. Other moves, such as the Swiss town of Zug allowing city fees to be paid in Bitcoin, have also shown Switzerland’s desire to foster a crypto-friendly environment.
It seems safe to say that post Brexit, the UK will be completely free to apply Switzerland’s speedier approach to regulating the sector. More importantly, some of the nation’s policy makers are already pushing for fostering healthy blockchain industry in the UK.
Last year the All-Party Parliamentary Group on Blockchain (APPG Blockchain) was established, with the goal of ensuring “that industry and society benefit from the full potential of blockchain and other distributed ledger technologies (DLT) making the U.K. a leader in Blockchain/DLT’s innovation and implementation”. Together with DAG Global and the Big Innovation Centre, APPG Blockchain published a comprehensive report assessing the existing blockchain industry in the UK.
Should Crypto investors worry post Brexit?
Historically, digital currencies have shown little direct correlation with the wider financial markets and while there are voices, suggesting that this might no longer be the case, the perception that crypto exists in a class of its own is not one that can be shaken off easily. Incidentally, the very fact that regulators around the world face such challenges in applying existing financial frameworks to the crypto sector seems to reinforce that idea.
This perception is likely part of the reason why some observers compare Bitcoin to digital gold. BTC, one popular school of thought says, can never be a viable way of payment, but it can exist as a store of value. The existence of the ‘hodl’ movement shows that this way of thinking is still a prominent one among Bitcoin aficionados.
Let us not forget that cryptocurrencies are based on a technology that is barely over a decade old. It’s not unusual for a new asset class to suffer extreme price volatility, as its true value is yet to be discovered. In the wake of last year’s ‘crypto winter’, it is easy to subscribe to the notion that digital currencies are doomed and that they could never achieve their lofty ambitions. A more measured approach would be to view the current bear market as the result of an extreme overreaction to the equally extreme bull run of late 2017 and early 2018. This way of thinking still has plenty of supporters.
Expectations that crypto would eventually make a comeback, that as the technology matures the value of the sector will grow, will likely attract people looking for alternatives to hedge against a potential GBP price crash similar to the one seen in the wake of the Brexit referendum, or against the potential struggles the EUR might experience after the EU loses one of its most important members. Institutional interest rising post Brexit is also not out of the question, although this particular scenario will be highly contingent on whether the crypto sector can develop the necessary infrastructure to facilitate high-volume investment. With Brexit poised to shift the geo-political balance in Europe an increase uncertainty in the region, it is not difficult to imagine that many people will be willing to take a chance on the digital gold.