The UK government and the treasury will add stricter regulations and Anti-Money Laundering (AML) policies to prevent financing of terrorism through the cryptocurrency.
A spokesperson for the UK treasury stated:
"We have clear tax rules for people who use cryptocurrencies, and like all tax rules, these are kept under review. We also intend to update regulation to bring virtual currency exchange platforms into anti-money laundering and counter-terrorist financing regulation."
Currently, the European market accounts for less than eight percent of total global Bitcoin trades. Given that the UK Bitcoin exchange market only accounts for a small fraction of the European market’s daily trading volume, the impact the UK government on the global Bitcoin market is minimal.
The market valuation of Bitcoin has recently surpassed the total amount of British pound in circulation, as well as its market cap. Hence, it is evident that the global Bitcoin market is not in need of the authorization or approval from the UK government. To put it simply, the UK government cannot crackdown on a currency that is larger and more valuable than its own currency, the British pound.
More to that, excessive regulation on Bitcoin will force investors and businesses out of the regulated British Bitcoin market to unregulated over-the-counter (OTC) markets, which will negatively affect the UK government in the long run. The movement of funds from a regulated to unregulated market will make it more challenging for the UK government to oversee Bitcoin transactions.
The most viable and practical method of regulating Bitcoin is to implement stricter Know Your Customer (KYC) and AML policies on existing cryptocurrency exchanges. Like Japan, the UK government could also explore the possibility of introducing a national cryptocurrency exchange licensing program to offer legal status to exchanges.
If the UK government does not follow the roadmap of other leading economies like the US, Japan, and South Korea in Bitcoin regulation by enforcing strict KYC and AML policies, then the government’s priority is not to crackdown on terrorism financing using Bitcoin, as advertised.
Although the UK has been recognized as the fintech hub of Europe, the majority of fintech companies have moved out of the UK amid doubts over Brexit. In contrast to other regions in Europe such as Germany, the UK has stricter regulations and impractical policies for fintech service providers.
Consequently, there exists no major cryptocurrency service providers or exchanges within the UK Bitcoin market. Many of the leading cryptocurrency trading platforms operating in Europe such as Kraken are based in other regions such as the US. For instance, Kraken, which processes the majority of trading volumes in Europe, is based in Berlin, Germany, San Francisco, US, and Tokyo, Japan.
Already, the UK blockchain and Bitcoin industries are struggling from a lack of developers, talents, and businesses. Excessive regulations will only restrict the local market, harming the long-term future of the UK’s cryptocurrency sector.