Published: November 27th, 2024
The chief executive of a major London wealth management firm says the UK government should consider building up a strategic reserve of Bitcoin as an inflation hedge, and a mechanism to give the government more options when it comes to currency markets.
In a statement on the company website, deVere Group CEO Nigel Green, said ‘the time has come for Britain to take the idea of a strategic Bitcoin reserve seriously. His call was prompted by signals that the USA is considering similar moves, with Wyoming Senator Cynthia Lummis’s recent proposal that America’s Treasury and Federal Reserve should work together and gather one million Bitcoins over the next five years to form a strategic reserve.
The idea would position BTC as a major inflation hedge and a new tool for sustaining America’s leading position in the global financial system.
'As the race for financial innovation and sovereignty heats up, the UK can’t be seen as a laggard,’ Green writes. Bitcoin's enforced scarcity, decentralized nature, and relative immunity to inflation pressures has already degraded the legitimacy of fiat currencies. Keeping a government Bitcoin hoard could strengthen the UK’s fiscal strategy and provide a hedge against currency devaluation and market volatility.
Though gold is the established sovereign wealth asset for most governments and central banks, Bitcoin has the advantage of being easily transferable, Green notes. Because its inherently digital, more and more individuals and institutions are adopting it as a store of value.
'As Bitcoin’s price continues to rise, the arguments against its inclusion in national reserves is getting weaker by the day. With the asset on its way to UD 100,000, Green believes a strategic Bitcoin reserve would re-establish Britain as a financial innovator, ‘ensuring we keep our status as a global financial center’.
The G20’s fiscal watchdog had a different message in July when it warned of wider systemic risk if the activities of crypto firms weren't reined in.
The Financial Stability Board (FSB) said that the continuing fallout from recent crypto catastrophes demands that financial regulators obtain greater oversight of the industry. The agency’s newly published global regulatory framework for crypto assets was strongly influenced by last year’s crypto failures, specifically the collapse of FTX and Terra.
To grapple with those risks, the FSB listed nine core recommendations for financial regulators as they attempt to control how crypto companies and markets operate. The agency also revised its guidance on regulatory rules for stablecoins.
The recommendations, which incorporate industry and investor feedback gathered during a public consultation on the topic, said there must be greater cross-border collaboration between national and international agencies, mandatory disclosures for traders and investment firms, and more stringent governance for crypto issuers.
The FSB said its suggestions had become ‘more robust’ in the aftermath of recent crypto events and now incorporate a push for stronger safeguarding of client assets, as well as measures to mitigate conflicts of interest.
‘The large-scale failures we’ve seen over the last 18 months spotlight how volatile crypto assets can be and point to structural vulnerabilities that could damage investors large and small,’ the Zurich-based agency said in a statement. ‘They also demonstrate how quickly failure in one part of the crypto-asset ecosystem can turn into contagion and contaminate other parts.’
The agency added that it expects more spillover of crises to occur as the crypto and traditional finance worlds become more intertwined.
Despite FSB warnings, the UK signaled its intention to normalize crypto activity in July, when the country’s new Financial Services and Markets Act 2023 officially became the law of the land. The bill recognized crypto trading as a regulated and legitimate financial services activity. The UK reform bill, which was given Royal Assent by King Charles, was described in a Westminster press release as having the potential to give Britain's economy ‘a rocket boost.’
While traditionalists may look at the wave of crypto enforcements actions taking place across the globe with distress, many experts believe that well-regulated markets for digital assets could open the door to more widespread adoption.
Under the UK’s new law, cryptocurrency trading can now be subject to rules and regulations designed to protect investors, levelling the playing field by adding transparency, standard definitions, and risk mitigation to crypto trades. The amended Act defined digital assets as ‘cryptographically secured digital representations of contractual rights or underlying value,’ and labels them as regulated financial products, investments, or instruments.
The Treasury press release noted that the goal of the law is to regulate how crypto assets are traded and held in custody and ensure their safe adoption in the country. The new law is being touted by the government of Prime Minister Rishi Sunak as a much-needed modernisation of Britain’s financial-services dependent economy.
‘This new law enables us to take back control of the UK's financial services regulatory regime,' said Economic Secretary to the Treasury Andrew Griffith. ‘By replacing old EU laws set by bureaucrats in Brussels it has the potential to free up billions of Pounds in investment, money that could spur innovation and drive economic growth’.
In Britain's parliamentary procedure for enacting new laws, Royal Assent is the end of the legal process that makes a proposed bill the law of the land, turning it into an Act of Parliament. The bill passed a vote in the House of Commons and was approved by the House of Lords in late June.
It was the first upbeat news on crypto’s regulatory front since the FTX meltdown spurred a wave of enforcement actions by American financial watchdogs, in particular the Securities and Exchange Commission (SEC).
In early June 2024, the price of Bitcoin fell sharply and triggered an overall plunge in crypto markets after the SEC began enforcement action against Binance, the world’s biggest crypto exchange.
