(Crypto-)anarchy in the UK – POLITICO
With help from Derek Robertson
The month of chaos in the UK, which reached a crescendo today with the resignation of Prime Minister Liz Truss, has a surprising winner: crypto backers.
The reshuffle and the way it unfolded – through a financial bailout and havoc in the bond market – only reinforces the crypto industry’s skeptical narrative about the relationship between governments and the financial system. And when the dust clears again, chances are the next head of government will be a strong advocate for digital assets.
For crypto believers, recent events in the UK have historical resonance. Bitcoin was invented during the last global financial crisis and first adopted by a group of crypto-anarchists who wanted to break out of the existing system. The first block of Bitcoin transactions ever sent was embedded in a Times of London headline from January 2009, “Chancellor on Brink of Second Bailout for Banks.”
Fast forward to 2022, and suddenly the UK is in rescue mode again. As the Bank of England raised rates to fight inflation, Truss’s government offered inflationary energy subsidies and tax cuts for the wealthy, which were touted as pro-growth. In response, the value of some UK government bonds, called gilts, fell, prompting margin calls on many of the pension funds that held them. This threatened to bankrupt some of the pension funds, forcing a bailout of the Bank of England bond market and a reversal of Truss’ fiscal plans.
Anyway, here are some headlines from The Times of London from the past few weeks:
How a ‘safe bet’ brought gilt markets to the brink
“These pensions were intended to protect your savings. Now they’ve gone wrong”
One from the FT: “BoE governor bets insisting on ending bond buying operation”
And one from Bloomberg:UK government seeks to restore credibility after BOE bailout”
You could say they have the energy of 2009.
So crypto looks…stable? A common criticism of cryptocurrencies, and sometimes cited by regulators (including the bank of england in July) is their high price volatility.
These concerns surfaced earlier this year when crypto markets crashed, losing two-thirds of their value within months. Crypto backers were quick to point out that some tech stocks actually saw bigger declines, including Netflix, which lost 35 percent of its value in a single trading session in April.
Recent events give them an even better talking point: amid the chaos of the past month, volatility in some long-term UK sovereign bonds has at times exceeded that of Bitcoin.
It’s one thing for some tech stocks to exhibit crypto-like volatility. It’s quite another when the sovereign bonds of a developed economy – which are supposed to be the low-risk (or even “risk-free”) cornerstones of the global financial system – suffer such price swings.
And it’s not just the UK system that’s showing cracks. Other important nodes in global finance, notably the Bank of Japan, are also under acute strain.
“If Bitcoin was designed to provide a plan B, this is kind of the time when you see the traditional financial and monetary system facing a daunting challenge,” said Steven Lubka, chief executive of the financial services firm. Swan bitcoin.
Clearly, long-term gilts are just a slice of a country’s sovereign bonds, and hand-picked examples of high volatility elsewhere do not eliminate the risks associated with a new asset class to strong scam. But at least when it comes to Bitcoin – the oldest and most popular crypto asset – Gilt’s volatility undermines the argument that its volatility presents. unique risks, and disorder in Britain plays directly into the founding narrative of its early adherents.
Then there is the question of what comes next. In April, then Chancellor of the Exchequer Rishi Sunak unveiled a plan to make the UK a crypto hub.
Last month, Truss beat Sunak to succeed Boris Johnson as Tory leader, and thus prime minister, leaving his pro-crypto rival relegated to the sidelines.
But as she sought to cling to power in her final days, Truss was reduced to installing Sunak supporters in top cabinet positions, including the Home Office and the Exchequer.
With Truss out, anyone can guess what happens next at Westminster, but Sunak is seen as a leading candidate to succeed him.
The first view from a corner of the House of Lords is that Sunak is the main competitor: “I suspect he is! And the odds are high,” Liberal Democrat Jeremy Purvis, Lord of Tweed, told me via text message. (Purvis himself is a crypto-skeptic and plans to raise concerns about its possible use to facilitate human trafficking during the upcoming parliamentary debate on an economic crime bill.)
There is a crypto casualty in the chaos: Sunak’s Financial Services and Markets Bill, which pave the way for the regulation of crypto financial activity in the UK, came for more consideration in committee yesterday, just in time to get lost in the shuffle as parliamentary say-order settle.
The Crypto Mining Appetite Debate electric power is becoming more urgent in Europe, where the energy crisis caused by the war in Ukraine is threatening the continent the whole economy.
What explains a paper published by the European Commission this week, recommending that if “there is a need for load shedding in power systems, member states must also be prepared to completely halt crypto-asset mining.”
The memo also recommends “an end to tax breaks and other fiscal measures benefiting crypto-miners currently in place in some member states”, and indicates that the Commission is working on developing an energy efficiency label for blockchains.
To activate the warning label, the EU Crypto-Asset Markets Bill, which has been passed by its Parliament earlier this month, will require crypto mining companies to disclose their energy consumption. It Could Be Dramatic: A White House Office of Science and Technology Policy Report published last month estimated that since 2018, the energy consumption of crypto mining has doubled or quadrupled. — Derek Robertson
In recent months, a host of regulators published new recommendations to make crypto more safe, stable and secure.
Late yesterday afternoon, one of the biggest players in the industry threw down his own gauntlet. In a blog post, FTX chief Sam Bankman-Fried described his own take on “Possible digital industry standardsmeant in his writings “to create clarity and protect customers pending comprehensive federal regulatory regimes.” The paper is just a set of recommendations for its peers, but it’s a useful window into how crypto titans might think about learning to live with regulation. Some highlights:
- Create “block lists” to glaze sanctions evaders
- Establish an industry standard that would pay hackers 5% of what they steal, as long as the rest is returned to customers, as a de facto “bug bounty”
- Ensure that dollar-pegged stablecoins are “backed by at least as many US dollars (or federally issued treasury bills) as there are stable tokens in circulation”
Bankman-Fried also tackles the industry’s biggest existential dilemma, namely how regulators should classify cryptocurrency. He describes FTX’s current system for testing whether products on its exchange are securities, before saying, “Ideally, we would end up at a place as an industry where being a security is not a bad thing: where it are clear processes for digital recording. securities that protect customers while enabling innovation. — Derek Robertson
Stay in touch with the whole team: Ben Schrecker ([email protected]); Derek Robertson ([email protected]); Steve Heuser ([email protected]); and Benton Ives ([email protected]). Follow us @DigitalFuture on Twitter.
Ben Schreckinger covers technology, finance and politics for POLITICO; he is a cryptocurrency investor.
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