The impact of Brexit on the UK cryptocurrency market

In February 2016, the UK’s Prime Minister, David Cameron, announced he would hold a national referendum on whether the UK should leave the European Union. The government carried out the vote the same year, and results returned with 51.9% of Brits voting to leave.

The UK was surprised by the result, and many expected the British economy to suffer as a result. Currently, the UK is estimated to be 5.5% worse off than if it had stayed in the EU.

However, the government is a big believer in blockchain and aims to make the country a leading crypto hub. So we want to explore Brexit’s impact on cryptocurrencies and whether the UK’s interest in blockchain can offset Brexit’s damage to its economy.

But first, here’s a quick rundown on what Brexit is.

What is Brexit?

Brexit is the UK’s departure from the European Union – an economic and political union of 27 European countries. In short, this meant the UK would no longer follow the EUs regulation and trade agreements while immigration and travel restrictions would increase.

Brexit created a political and economic border between the UK and the EU, leaving the UK to look for new agreements outside the union.

With this in mind, two main areas of Brexit that will affect crypto are regulation and borderless payments.

Regulation

The European Union is a world leader in innovative regulations. While this can restrict business growth, it also provides company stakeholders certainty and stability, thus making the region attractive for business.

Currently, EU regulators are building the Markets in Crypto Assets (MiCA) regulatory framework, which clarifies the EUs stance on many areas of crypto, such as stablecoins and custodial exchanges.

This is the most extensive set of cryptocurrency regulations developed anywhere on the planet, and many other states and unions (including the UK) are working on similar frameworks.

The separation from the European Union means the UK can develop its own regulatory frameworks as it sees fit. Rishi Sunak, the new British Prime Minister, aims for the UK to become a “global crypto hub” and hopes to take an open-minded approach to crypto regulation.

One example of how the EU’s MiCA bill and the UK’s view differs is on stablecoins. While both agree they should be regulated, it seems the EU sees stablecoins as more of a threat because many EU citizens now hold US dollar reserves through stablecoins, which was impossible in the past. This can lead to a stronger and more in-demand US Dollar vs the Euro.

On the other hand, Rishi Sunak believes stablecoins could be a more efficient means of payment and widen consumer choice. Hence, he is generally more welcoming to stablecoins than EU regulators.

How UK regulation will affect crypto

So what will Brexit’s impact be on crypto regarding regulation?

Ultimately, the split from the EU means Britain has more sovereignty over its laws and regulations. The UK government has been using this to make the country a more attractive alternative than the EU for cryptocurrency companies to do business.

This is fantastic news for the crypto industry because companies have more choices in which countries to operate. This means the EU may need to rethink some of its harsher regulations within the MiCA bill, to prevent losing crypto business to the UK.

The open-mindedness of the UK government on issues like stablecoins could attract new issuers into the country and lead to the UK being a pillar of the crypto industry.

Borderless Payments

While alternative regulatory frameworks could give crypto companies more freedom, the split of the UK from the EU has caused fragmentation, which leads to inefficiencies in everything from trade to travel.

And although the UK uses the British pound, leaving the EU has complicated things for businesses trading between the two zones- mainly due to the inability to “passport” regulatory compliance. Now companies must comply with different regulations on both sides of the border. This has made moving money between the UK and EU more challenging.

A recent report from JP Morgan found multiple issues regarding banking between the EU and the UK, stating there would be regulatory difficulties, additional charges and more data requirements to transfer funds cross-border.

For example, before Brexit, the only data required to transfer funds between the UK and the rest of the EU was a name and account number. Today, however, banks also need the following:

• The full payer’s address
• Official person document number
• Customer identification number or date of birth

With this in mind, post-Brexit cross-border payments have more friction, complexity and cost. This could be why Rishi Sunak is embracing crypto as an alternative payment option.

Cryptocurrency is the ideal solution for transferring money across borders; it is liquid and only requires the payee’s wallet address to make the transaction. Additionally, international payments can cost pennies and can be settled in minutes. In comparison, transfers between UK and EU bank accounts can sometimes take up to five days and have become costly.

Unsurprisingly, the UK aims to be the global hub for crypto innovation; this would allow for fast, low-cost and secure borderless payments while maintaining a higher level of sovereignty and autonomy than the country had before.

Is Brexit a good or bad thing for cryptocurrency?

Cryptocurrency can help reduce some of the adverse effects of Brexit, which would lead to more demand for crypto. The UK is already one of the highest crypto adopters worldwide, with a report finding that 6.2% of UK residents held crypto in 2021.

Ultimately, crypto allows borderless payments in a world where individual countries still have sovereignty. Unlike fiat currency or future CBDCs, cryptocurrency is backed by open-source code. This means anyone can test it to ensure it’s safe, non-invasive and permissionless.

If the UK continues to embrace crypto, it will likely attract many new crypto companies. This could lead to exciting technological breakthroughs in the industry in the coming decades.

Here at Cryptioy, we have recently opened an office in the UK. This means we are fully up-to-date and compliant with UK regulations and can provide UK residents access to our automated crypto tax software.

If you want to save time and money while having peace of mind knowing your crypto taxes are correct, join us today.