27th October 2022 > > UK

tl;dr

UK and regulation.

Market Snap

Market Wrap

I commented yesterday that we could see a short squeeze, a comment which was met with $1bn of liquidations of shorts during the day, propelling BTC to nearly break $21k.

Keen to self-inflict even more pain, the shorts have been reinstated leading to an even more negative futures funding rate accompanied by a small increase in open interest. Any positive news today, or increased appetite for risk assets generally, is likely to cause the shorts to scream howls of anguish once again.

Occasional Series – Wealth tax

The OBR (Office of Budget Responsibility) says that public spending in the UK will be £38k per household in 2022.

Average household income is just over £30k before taxes.

Given that there is no public or political appetite to rein in government spending in any meaningful way, and the fantasy economics of quantitative easing and modern monetary theory have been skewered for ever more, wealth taxes are the only option left.

House owners who think that Council taxes are way too high (try living in Hackney) are going to be very upset at the additional annual cost the government will levy for living in their own home.

This scenario will result in a flow of pounds into lawyers’ pockets as those wealthy enough to put in place (legal) tax avoidance arrangements to protect themselves do exactly that, leaving the burden to fall on those of more modest means.

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Wealth taxes do have one obvious upside – they will spur additional flows of money into cryptos held in self-custodial wallets.

Curious Cryptos’ Commentary – UK

The UK prides itself on the pre-eminence of its financial services industry, particularly in the wealth creating, value added part of banking operations – trading and risk management in capital markets, both debt and equity, and dealmaking.

Having sat back and watched the US and the EU gain ground in the regulation of cryptos, attracting inward investment and tax dollars, UK lawmakers are starting to wake up to the risks of being left behind.

TradFi is an outstandingly competitive business, but its centre of gravity will increasingly be drawn to regions of crypto excellence.

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Enter the Financial Services and Markets Bill, whose central objective addresses this very problem:

“… a range of measures to maintain and enhance the U.K.’s position as a global leader in financial services, ensuring the sector continues to deliver for individuals and businesses across the country.”

If you think the UK’s finances are bad now, without the contribution from the City, we would be in a whole lot more trouble.

Lisa Cameron, member of parliament and the chairperson of The Crypto and Digital Assets All-Party Parliamentary Group, has also made encouraging statements:

“We are on a learning curve and it’s just very, very important because the U.K. government has a policy vision that the U.K. will become an international hub of cryptocurrency and digital assets.”

But that recognition of being on a learning curve, is nagging at me a little. We are all on the learning curve every day – that is the CCC mission. The key question is – where you are on that learning curve. And I am a little worried that Lisa, as the lead for legislation and regulation of crypto assets, should know more than she does:

“In my understanding and from the session we’ve had at the Bitcoin conference, you know, some of that relates to Bitcoin, some perhaps not all so greatly because of the decentralised nature of it.”

Perhaps she just expressed herself badly.

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The new bill itself seems to reflect some core misunderstandings around cryptos.

It introduces a new term “Digital Settlement Assets” (DSA) in place of “crypto assets” the justification for which is that “crypto assets use some form of distributed ledger technology (DLT)” whereas DSA includes stablecoins.

Stablecoins use DLT too, except in the very specific case of CBDCs (Central Bank Digital Currencies) which are not, and never will be, cryptos.

I am concerned that this new bill is being introduced under the guise of wishing to foster innovation and development in the crypto industry, but its real purpose is to act as a Trojan Horse to accelerate the UK’s own CBDC, the Britcoin.