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At the end of 2013, the UK was not a great place for bitcoin or an entrepreneur. Value Added Tax (VAT) is charged on the sale of digital currencies, few merchants were even aware of its existence, and banking or funding for startups in the space is almost non-existent. Fast forward to today and the UK is now considered one of the most promising places in the world to handle bitcoin business. This is largely due to the work of the bitcoin community, as well as the growing involvement of the government, which is eager to strengthen London’s “Fintech” flourished and maintained the city’s status as a global financial center.
Last year, the London Bitcoin Meetup grew from a few people in a pub near Paddington Station, to the world’s largest regular gathering of digital currency enthusiasts. It was from these gatherings that the Digital Currency Association was formed in the UK to promote the sector and provide a single point of contact for policy makers and regulators. The culture of the Bitcoin community in the UK is quite different to that of many countries, with many involved working in the large UK financial services sector. This results in a pragmatic approach to promoting and increasing the adoption of digital currency, and the general consensus is that the regulation on light touches of certain types of business should be welcomed – to legitimize the technology and to prevent episodes like the Moolah (dogecoin related) ) Debacle. This proactive mentality led to some early successes with regulators; In April, the tax authorities in the UK abolished the aforementioned VAT on sales and trade charge for sales.
While a bit of retail Bitcoin has slowed down, in Great Britain Bitcoin initiators held their own from their American counterparts in 2014. Blockchain.info, established in the slightly larger surroundings of Yorkshire in the north of England, announced in October that it raised a $30.5 million bitcoin setup. Bitnet, the payment processor whose team previously sold the $2 billion business to Visa, set up operations in Belfast and raised $14.5 million. Elliptic launched the first secured Bitcoin Custody service in January, later raising $2 million in seed funding. Koinfloor and Netagio launched bitcoin exchanges and two established Australian Bitcoin Business, BTC.SX and Coinjoj, even moved their headquarters to London, attracted by the city’s financial pedigree and favorable tax regime.
That’s not to mention the raft of new startups that launched last year, including xbterminal (a POS system), Pockio (Crypto gift card), Queueco (automated trading platform) and Wyre (mobile opportunities), with many more in development. And it’s not just Bitcoin. Alternative technologies and blockchain-based applications from UK-based companies like ERIS Industries and Maid have the potential to facilitate smart contracts and power all kinds of decentralized applications in the years to come.
However, all this success creates significant structural challenges that remain in the UK. It remains nearly impossible for bitcoin companies to obtain bank accounts, especially if they want to maintain customer deposits. Although a widespread issue, it appears to be particularly acute in the UK, with banks citing the risk of money laundering, an issue they are particularly sensitive to from the distraction of huge fines against HSBC and others. This difficulty is exacerbated by the reluctance of financial conduct authorities and other regulators to take responsibility for overseeing bitcoin transactions.
Yet there is hope; Swedish exchange Safello proved to be a recent exception to the rule, securing a banking relationship in the UK. The Bank of England has weighed in on cryptocurrencies, releasing two detailed reports on digital currency technologies and their economic implications. In July, the European Banking Authority in London argued that the issue could be resolved by bringing digital currency companies under anti-money laundering regulations. And in August, Chancellor of the Exchequer George Osborne took the politically significant step of buying bitcoins from ATMs at a Fintech event in London, before announcing a government consultation on digital currencies.
Global regulatory uncertainty has created an opportunity to capitalize on some of the dependence on the UK. These self-governing territories have managed to carve out lucrative niches in finance and e-gaming in the past, thanks to their political and legal independence from the UK, and are now looking to do the same with digital currencies. For example, the Isle of Man has promised to regulate bitcoin transactions, while Jersey has become home to Gabi – the first regulated bitcoin investment vehicle. [Banking still remains an issue as Capital Treasury Services was forced to cut ties with the Isle of Man’s Bitcoin companies, and HSBC ended its relationship with the Jersey sponsor of the GABI fund.]
Events over the next year will be critical in determining the future of digital currencies in the UK and perhaps elsewhere in the world. The UK’s legal and regulatory framework is respected globally and the government’s conclusions to the sector review (expected in the next few months) will be closely watched and likely broadcast. If the government moves to further legitimize digital currencies, we can expect to see an explosion of interest from City of London financial institutions.
Huge progress was made in the UK in 2014. Due to the current Fintech Boom, its financial expertise and its passionate bitcoin community, it seems to have become a major hub for digital currencies.
Compliance Crypto Regulation EMEA
