- “London has lost a lot of its mojo and momentum” in crypto, says Xavier Rolet, the former CEO of the London Stock Exchange.
- Venture capital funding for UK blockchain startups fell 31% in the fourth quarter
- “If Revolut can barely get their foot in the door and talk to these guys and work progressively, that means I definitely can’t,” said Jeff Hancock, founder of UK crypto exchange Coinpass
Could London lose its crypto crown to Paris?
That possibility is rising after hints that Revolut, the UK’s biggest fintech firm and a major crypto provider to retail investors, plans a bigger French presence amid struggles to win a bank licence.
Another blow came days later, when US crypto exchange Gemini snubbed London for Dublin after voicing concerns about the UK’s flip-flopping crypto stance. And OKX, a Seychelles-based crypto exchange with a UK presence, said it will make Paris its European headquarters — not London.
“London has lost a lot of its mojo and momentum,” Xavier Rolet, the former CEO of the London Stock Exchange and a Frenchman, told DL News.
Rolet, boss of the LSE from 2009 to 2018, was referring to the digital assets space, but has made similar comments about the broader state of post-Brexit Britain.
He warned politicians about the country’s exit from the European Union, arguing — correctly, it turned out — that hubs including Amsterdam and New York could chip away at London’s position as a top financial centre.
Regulators have told ‘Binance, and now Revolut to all go pound sand while various EU countries have welcomed them with open arms.’
It doesn’t help that the government, led by Prime Minister Rishi Sunak, sends mixed messages about supporting the crypto industry. Sunak has often touted London as a hub for digital asset businesses.
And yet, on May 17, Parliament’s Treasury Committee called for regulating cryptocurrencies like casinos — which didn’t go down well.
“It’s pretty funny,” Sean Tuffy, a regulation expert and former Citigroup executive, told DL News. “For all the talk about Brexit unleashing the City,” he said, regulators have told “Binance, and now Revolut to all go pound sand while various EU countries have welcomed them with open arms.”
The numbers are stark: venture capital funding for UK blockchain startups fell 31% in the fourth quarter, according to CB Insights. Funding in Europe as a whole dropped only 16% — the continent’s crypto action is now blowing Britain away.
And the International Monetary Fund forecasts Britain will be the worst performing major economy. That includes even Russia.
It’s a sobering development for a nation that started off as the undisputed leader in fintech and crypto development a decade ago.
Successive British governments supported the so-called Silicon Roundabout tech scene in Shoreditch, with tax breaks and light-touch policies. And it was Westminster that developed the “sandbox” approach to regulation by collaborating with tech founders.
That was then. These days, founders like Revolut’s Nik Storonsky are confronting the funk enveloping London’s tech scene.
The prospect of Britain losing out to France in crypto would be an embarrassing setback for Sunak, and the slowness of regulators in approving Revolut’s bank licence isn’t helping.
In 2021, Revolut was valued at $31 billion — the type of home-grown hero Sunak has touted as key to stimulating growth post-Brexit. The company, which offers easy-to-use money transfer and payment services to some 25 million customers, made about 20% of its income from crypto in 2020.
Over the years, France has secured a reputation for welcoming crypto firms. Its relatively straightforward registration process has seen 74 crypto companies, including Binance and Bitstamp, win a nod from the nation’s Financial Markets Authority. In other words, they can operate in the country without needing a higher licence.
‘Otherwise, more scandals, money laundering, and fake products are on the horizon, for which regulators will bear the blame.’
Still, founders hoping that France will be a crypto utopia better think again — the country is facing big challenges, including the EU’s new Markets in Crypto-Asset regulation.
“Given the issues that crypto firms are facing in other jurisdictions, and the general problems still dogging the industry, it will be interesting to see how France’s play to become a crypto hub works out,” said Tuffy.
The question of regulatory clarity lies at the heart of these developments. Rolet said regulators — whether they be in the US, the UK, or France — “need these platforms to become fully regulated, just like a normal exchange” does.
“Otherwise, more scandals, money laundering, and fake products are on the horizon, for which regulators will bear the blame,” Rolet said.
An aggressive regulatory clampdown in the US this year is helping to create what Jeremy Allaire, the co-founder of stablecoin issuer Circle, calls “a regulatory ‘Game of Thrones.’”
Lisbon, Dubai, Seoul, and Barcelona are among cities competing to woo crypto founders with more affordability, less onerous regulations, government subsidies and, most importantly, pools of cheaper talent.
The UK, which should be a beneficiary of this trend, is now a question mark. The Financial Times reported earlier this month that London financial regulators were on the cusp of rejecting Revolut’s banking licence application after a two-year slog to get it over the finishing line.
“It is not really us, it is generally the banking crisis we see at the moment that makes regulators extra cautious,” he told the FT.
To some, Revolut’s licensing struggles echo their own problems.
“If Revolut can barely get their foot in the door and talk to these guys and work progressively, that means I definitely can’t,” Jeff Hancock, founder of UK crypto exchange Coinpass, told DL News. “It would show a big loss of faith in trying to accomplish their goals where they could go and accomplish them elsewhere.”
While Revolut’s leaders are scheduled to speak with government officials over the next few weeks, they are also looking to France, The Times reported.
“The UK is our home,” a Revolut spokesperson told DL News, declining to comment on its “ongoing” regulatory application.
The news also followed the UK Treasury Committee’s push to regulate the industry like gambling. Tyler Winklevoss, co-founder of Gemini, told The Telegraph that the proposal is an example of inconsistency that made him think twice about basing operations in London.
A day later, Gemini announced plans for a new European headquarters in Ireland, hoping to leverage “the profound promise of crypto” in Europe.
Meanwhile, OKX plans to make France its regional hub in Europe, with plans to hire around 100 people there in the next three years. The news comes even as the exchange has grown roots in the UK — last year, it inked a multi-year sponsorship with Manchester City football club.
A French official in a statement called OKX’s decision a “testament to the success of the French government’s policies aimed at nurturing a resilient and secure innovative crypto-asset sector.”
OKX, which didn’t respond to a request for comment, has faced similar legal woes as Revolut. It halted its Canadian operations earlier this year after the introduction of new crypto rules.
OKX is set to join a long list of crypto firms that have benefited from the French Financial Markets Authority’s straightforward registration process.
Similar to Britain’s e-money procedure, registering as a virtual asset service provider means financial firms can operate in France without having to undergo the more rigorous bank licence process. While over 70 firms have registered, none have received a higher level of licensing as of March.
However, France has tightened its rules in anticipation of MiCA and to avoid FTX-scale scandals. In February, the National Assembly approved new rules making it harder to register there. The new rules, set to snap into force in January, include extra requirements on anti-money laundering, cybersecurity, and conflicts of interest.
For all of the buzz around France, investment there still pales compared to in the UK. Crypto projects operating out of the UK received $232.7 million across 20 deals between January and March, making Blighty the world’s second largest destination for such investments after the US, according to DefiLlama data.
France closed six deals in the first quarter of 2023, worth $45.5 million.
Ultimately, action won’t be driven by developer innovations or founders’ clever business models. At least, that’s how Rolet, a veteran of the markets and economic cycles, sees it.
He said: “The evolution of crypto or digital currencies is fundamentally a regulatory, and not a technology, issue.”