For years, the cryptocurrency industry has taken the UK government at its word as it repeatedly pledged to make London a hub for digital assets. However, a one-two punch has deflated such hopes.
First, Prime Minister Rishi Sunak indicated he may withdraw Britain’s application to participate in Horizon Europe, a €95 billion ($85 billion) development programme that supports scientific and technological research and startups, including blockchain ventures.
Then the British government said it was launching its own £370 million ($444 million) programme to make the nation a “technology superpower.”
While the Science and Technology Framework identified semiconductors and quantum computers as critical technologies to focus on, it made no mention of blockchain or digital assets or cryptocurrencies.
Industry stalwarts fear the twin moves will hurt the crypto industry’s development in Britain. “It’s unlikely the UK will be number one or two, maybe not even number three,” Alan Vey, CEO of Aventus Network, blockchain protocol, told DL News.
“This is as much an opportunity as it is a threat”
And Sunak’s stance sends a message that the UK may be turning its back on the sector. “This is as much an opportunity as it is a threat,” said Eric Van der Kleij, the former chief executive of Tech City, a government-supported organisation that helped develop London into a startup hub.
“The UK has a huge advantage in its depth of research and the government needs to quickly ensure it has the right policies and resources to thrive.”
The Horizon programme is a linchpin of the European Union’s effort to stoke scientific and technological innovation and nurture commercial ventures that can compete with Silicon Valley. Horizon and its predecessor have invested €347 million in more than 300 blockchain-related ventures in sectors ranging from public services to manufacturing to social media, and supports scores of startups across the bloc’s 27 nations.
The initiative also makes it easier for ventures to hire software developers and other personnel from across the continent.
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Since November 2021, the UK has supported British applicants to the Horizon programme and provided £882 million in grants to tech and science ventures. Now, according to a report in The Financial Times, it appears Sunak has opted to pull back from the programme and not invest £15 billion for the remaining four years of its term.
It appears the prime minister is “sceptical” about British participation and investment in a programme managed by Brussels. Even though the government has assured British applicants their funding will remain intact until June, it seems clear No. 10 Downing Street is rethinking its tech sector support policies.
For cryptocurrency entrepreneurs, this shakes up an industry under pressure from a number of forces. In the US, a regulatory crackdown is poised to drive startups to seek new domains relatively free of the legal hassles and costs.
The once-thriving Hong Kong crypto scene has stagnated after free speech clampdowns and a disastrous zero-Covid policy sapped the metropolis of entrepreneurial energy.
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And new locales – Lisbon, Dubai, Seoul, Barcelona, among others – are wooing crypto founders with more affordability, less onerous regulations, government subsidies and, most importantly, pools of relatively cheaper talent.
London was supposed to be a pacesetter. For the last decade, successive Conservative Party leaders have supported a slew of taxpayer-funded programmes – such as the now-defunct Tech Nation – to stoke fintech and cryptocurrency startups.
Accelerators in London’s East End and Silicon Roundabout teemed with fintech and blockchain projects, and crypto meetups and conferences were the envy of other European cities. Less than a year ago, Sunak, then the chancellor of the Exchequer, pledged “to make the UK a global hub for crypto asset technology.”
For all the buzz, Brexit appeared to be taking a toll on confidence in the UK’s startup scene. While the UK still leads Europe in volume – the country attracted £2.7 billion in venture capital cash in the fourth quarter – it’s going in the wrong direction.
VC investment in Britain has fallen 15% since early 2019 compared to a 20% jump in France and a 41% surge in Germany, according to CB Insights.
Blockchain investment has been one of the bright spots. Venture capitalists have poured £206 million into crypto startups in Britain since early 2019, a nine-fold jump. That is twice the increase in Singapore, according to CB Insights data.
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Yet Britain’s divorce from the 27-nation free trade bloc is hindering the international recruitment efforts of local crypto projects, said Aventus’s Vey.
While the UK government has introduced tech visas to make it easier to hire talent from abroad, there’s a lot of red tape to cut through. “It’s still possible – there’s just more complexity to it,” Vey said.
Now there may be more hassles. Vey said programmes like Horizon Europe provide a valuable source of capital for crypto startups. “When you’re trying to build something, it’s always helpful to have easy access to capital and it’s very difficult from the VC world at the moment,” Vey said.
Nathaniel Ogunniyi, a consultant at FTI Consulting, sees a silver lining in the government’s proposed Science and Technology Framework. “It makes little mention of blockchain and associated tech,” he said. “But the points it makes about financing companies and talent and skills are important.”
“In the wake of Arm’s decision to list in the States last week and several other City departures, the government has its work cut out”
And the pressure is on to demonstrate that the UK will be a proper springboard for tech entrepreneurship. Last week, Arm, a rapidly growing British computer chip designer, opted to list on a US exchange instead of one in London. The decision was a blow to the idea that a post-Brexit Britain would enhance its competitiveness.
“In the wake of Arm’s decision to list in the States last week and several other City departures, the government has its work cut out, and must ensure that our best and brightest don’t have to go abroad for funding,” Ogunniyi told DL News.
The question now is if crypto founders will think twice about planting their flag in London.