Snapshot UK election sends cryptocurrency industry into battle with Labor allies

Two nights before Prime Minister Rishi Sunak surprised the UK by calling a snap election, cryptocurrency executives sipped wine and ate canapés on the terrace of the House of Commons, part of a months-long effort to build stronger ties with lawmakers and the British power brokers.

The event was organized by US cryptocurrency exchange Coinbase Global Inc. and its advisor, former Conservative Chancellor of the Exchequer George Osborne. But while senior members of both of Britain’s two dominant political parties were present, the influence campaign had increasingly targeted Labour, given its large and consistent lead in the polls.

Sunak’s decision to call an election for July 4 validated this approach, but also underlined the sense of uncertainty hanging over cryptocurrencies in the UK. The Labor Party has not been in power since 2010, when Bitcoin was worth less than a dollar. And its leader, Keir Starmer, has remained mostly silent on cryptocurrencies.

“Everyone is guessing,” what Starmer plans to do about regulating cryptocurrencies if the Labor Party wins, said Laura Navaratnam, UK policy lead at the Crypto Council for Innovation. “Part of the answer is most likely that Labor doesn’t know what they think yet.”

In what is arguably the most important election cycle ever for cryptocurrencies, both the UK and the US are choosing their leaders in a span of just four months. Since the two countries last went to the polls, the sector has weathered a brutal market crash and the harshest regulatory crackdown.

But last year brought a remarkable recovery, capped by the approval of exchange-traded products tied to Bitcoin and Ether on both sides of the Atlantic. In the United States, the industry is increase donations to crypto-friendly candidates to maintain momentum. In the UK, he focused on getting closer to Starmer and the party he led.

The UK is Coinbase’s second-largest market, but many in the industry see the country as a laggard in cryptocurrency regulation. This is despite the commitment made by Sunak himself, shortly before becoming prime minister, to make the country a key hub for the sector by 2022. Since then, the European Union (which the UK voted to separate from in 2016) has passed extensive cryptocurrency legislation, and rival financial centers such as Hong Kong and Dubai have introduced new regulations.

In contrast, the UK primarily relies on a patchwork of crypto rules enforced primarily by the Financial Conduct Authority. Plans set out by the Treasury in February last year call for digital assets to be regulated in a similar way to traditional financial services.

The FCA is expected to publish a first draft of its proposed crypto licensing regime later this year, according to two people familiar with the matter. The regulator declined to comment.

Here is the cryptocurrency wishlist in the UK:

The Conservative government’s proposal to introduce secondary legislation on stablecoins (cryptographic tokens typically pegged to a currency such as the dollar) failed to reach a vote before parliament was dissolved ahead of the election. It is unclear how quickly it might reappear on the agenda in a Labor regime.

With Labor consistently running well ahead of the Conservatives in the polls following Liz Truss’s tumultuous and brief reign as prime minister last autumn, the cryptocurrency lobby is preparing for a changing of the political guard.

In October, trade group CryptoUK held its first event to coincide with its annual Labor conference in Liverpool. When Coinbase launched the Stand With Crypto lobbying program in the UK two months later, it did so in Manchester, a traditional Labor stronghold.

“We fear that if the Government delays too long in putting in place a comprehensive regulatory package, we will be far behind our competitors,” CryptoUK board advisor Ian Taylor said. A Labor victory could usher in “a demographic shift that will hopefully affect our industry”, he added.

Reeves, Siddiq

With Starmer seemingly less interested in digital assets, crypto executives have turned their attention to Rachel Reeves, Labour’s shadow chancellor, and Shadow City minister Tulip Siddiq. If Labor wins, they will likely oversee efforts to rehabilitate London’s status as a global financial center after Brexit.

Coinbase hosted a roundtable with Reeves at the World Economic Forum in January. Also in attendance were executives including Sriram Krishnan, UK general partner at venture capital firm Andreessen Horowitz, and John Collison, co-founder of Stripe.

Andreessen Horowitz, also known by the nickname a16z, is among the biggest VC backers of crypto startups. Stripe announced in April that he will bring it back Crypto payments to its platform.

At an April event in London, Siddiq said the Labor Party wants to make the UK a “global hub” for tokenized securities, assets such as stocks or bonds represented in the form of digital tokens on blockchain. Proponents say tokenization will make financial transactions faster and more transparent.

As well as choosing potential future leaders to court, preparing for a Labor government also means adapting the political message of cryptocurrencies, said the CCI’s Navaratnam.

Instead of publishing white papers on cryptocurrency regulation, companies have prioritized grassroots awareness raising in Labor strongholds like Manchester. And rather than threatening an exodus of startups if regulations aren’t relaxed, Navaratnam said the Labor Party will likely be more receptive to demonstrating how digital assets can help ordinary people.

“The way we’ve talked to the Conservative government has largely been from a pro-market and pro-competition perspective,” he said. “I don’t think the same argument can hold with a Labor government.”

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