Can anyone deny anymore that blockchain and distributed ledger technology (DLT) are here to stay? There is a thin surface of headline-grabbing news relating to crime, scams and hacks which try to detract from what can only be seen as one of the greatest technological adoptions the world has seen for some time.
So, what are the metrics for such an assertion? Well, there is the $1trn market cap of the global cryptocurrency market, which has been as high as $3trn but that in itself is not enough to demonstrate the point. The salient point here is that we reached these heights with limited institutional adoption.
Yet, institutional interest is starting to pick up exponentially and by extension institutional adoption will quickly follow. As CEO of Archax, the most regulated financial services firm in cryptoassets with exchange, custody and brokerage permissions and the first firm to receive cryptoasset registration in the UK, I have witnessed this seismic shift first-hand.
Don’t just take my word for it – let’s look at the evidence. In the UK, we had one of our largest asset managers, abdrn – with assets under management exceeding £450bn, take a significant stake in Archax. Clearly, abrdn think that there is a future here to keep an eye on. But they aren’t the only ones. Almost at the same time, Blackrock announced a partnership with Coinbase to allow their clients to more easily manage and trade Bitcoin. Then of course there is Fidelity who have been offering Bitcoin services for some time and recently announced Ethereum added to their list of products. That’s three of the largest asset managers making significant inroads, but it doesn’t end there. Go to any conference and you will find representatives from any of the tier 1 banks and other key financial services players, all of whom are just a few from teams tens of people deep.
So why does it matter? The UK has a reputation as a financial centre and FinTech hub which is helped by the depth of case law built up from being at the centre. If we want to maintain this position going forward, we need to recognise what is happening and ensure we are correctly positioned.
Our discussions with those in the digital space make it clear that there is more the UK can do to embrace this opportunity.
As one example, banks themselves are innovating in this technology whilst simultaneously refusing the innovators in the same space bank accounts. Having a bank account is almost the most fundamental requirement of any company and restricting the ability to access one causes companies operational problems that they must overcome.
Even if a UK company could achieve an account, the cryptoasset registration process has been difficult and we have seen some large blockchain companies that started their lives in the UK move offshore to more welcoming jurisdictions. Rather than appreciate that these companies started their lives in a world with little regulatory guidance and help them overcome deficiencies, we just pushed the innovation and tax revenue offshore.
The UK economy is experiencing one of its most turbulent times presently and the solutions of the past may no longer work in a world where people and companies are more geographically mobile. New problems require new solutions and embracing new technology with all of the innovation and efficiencies it may bring could well be one of those solutions.
It’s no longer enough to encourage companies to come to the UK because we have a stable financial services industry. Indeed, the FTSE-100 will only get us so far. What we need to do is encourage the innovators. Come to the UK, you will be able to get a bank account, we will work with you to build your business effectively and support you as you help us grow our economy. Let’s create an environment where the innovators of the world want to come to the UK and help drive our economy forward.
Archax is a great example of this. Incorporated in 2018, employing over 100 people and growing throughout Covid-19 to provide employment and innovation whilst working in line with all of the regulations put in front of them. For every Archax though, there are a handful of companies that have gone to other jurisdictions because we just did not make it work for them in the UK.
The UK has such a powerful economy that with relatively little action we can correct the course we are presently on. For example, the recent amendments to the Financial Services and Markets Bill give us the opportunity to continue to expand our cryptoasset capabilities in the UK. This change is useful but given we need tangible action – platitudes alone won’t get us there. Therefore, groups like Digital Tories are essential to advancing this narrative – ratcheting the tech agenda up the political ladder.
Let’s push the banks to support our companies. Let’s encourage the regulators to support good actors. Let’s educate people on this technology in our world-beating education system to fuel this innovation beyond the next two years. Let’s develop UK law to account for the nuances of this technology. But let’s do all of this soon because this technology and those in it move at such a pace, we have no other choice if we want to win in the global digital race.
By Graham Rodford, Founder & CEO at Archax