While the UK government has expressed a desire to be a global hub for digital assets, reality tells a different story. The British crypto community is sounding the alarm, arguing that the country is falling behind in the global Bitcoin race.
Experts from crypto organizations across the UK told BeInCrypto that the country’s cautious approach stifles innovation and drives businesses offshore. This continued environment will evaporate any competitive advantage the UK used to have in financial innovation.
A Lagging Financial Hub
The common consensus among the crypto community across the United Kingdom is that the legislative inertia in fostering a competitive crypto hub in the region is alarmingly slow.
As countries across the globe race to develop clear and comprehensive frameworks, even some of the UK’s leading politicians have made public statements on the situation.
Earlier this month, former Chancellor and current Coinbase advisor George Osborne published an opinion piece arguing that the UK is at risk of missing a second wave of digital asset innovation. He expressed concern that the country’s slow regulatory progress allows other nations to pull ahead.
“What I see makes me anxious. Far from being an early adopter, we have allowed ourselves to be left behind,” he wrote.
The sentiment among crypto users in the region is largely the same.
Is the FCA Protecting Consumers or Pushing Them Offshore?
The UK’s regulatory stance currently appears to be one of extreme caution. Experts argue that the country’s overreliance on regulation actively damages its competitiveness.
“The UK talks about being a hub for digital assets, but in practice, the environment feels hostile. Slow approvals, endless red tape, and constant uncertainty mean innovation is stifled before it can begin,” said Jordan Walker of The Bitcoin Collective.
This pattern of regulatory action is not new. The playbook of regulation by enforcement was also utilized during the leadership of former US SEC Chair Gary Gensler. During that time, many in the crypto industry attributed this strategy to the United States’ failure to maintain a competitive edge in the crypto sector.
A similar scenario is now taking place in the UK. The current hostility has led to a significant debanking problem, where traditional financial institutions, adhering to standards set by the Financial Conduct Authority (FCA), sever ties with crypto companies.
“The FCA’s approach isn’t protecting consumers, it’s harming them by cutting off access and pushing opportunity offshore.” Susie Violet Ward, CEO of Bitcoin Policy UK, told BeInCrypto.
The UK regulator’s approach to classifying crypto assets has intensified these challenges.
The Problem with Asset Classification
The FCA currently applies a “same risk, same regulation” approach to all digital assets. This method fails to acknowledge different cryptocurrencies’ unique technical and economic characteristics.
The regulator has historically grouped all assets under a broad “high-risk, speculative investments” label. While this definition is true to an extent, it fails to distinguish between Bitcoin, a decentralized network with a fixed supply, and other categories like meme coins or crypto tokens.
“We’ve seen companies leave the UK because of debanking, limited retail access to Bitcoin products, and a lack of clarity from the FCA. It’s a struggle to operate here compared to other jurisdictions that move faster and give businesses room to innovate,” Walker noted.
By treating them the same, critics argue that this misclassification applies ill-suited regulations, generating confusion and unnecessary barriers for legitimate businesses.
Beyond these definitions, the regulator’s ban on the sale of certain crypto-related investment products has also slowed the pace of innovation.
Can the UK Catch Up to the US on Retail Crypto Products?
In October 2020, the FCA enacted a policy prohibiting the sale, marketing, and distribution of derivatives and exchange-traded notes (ETNs). The regulator cited security risks, volatile prices, and a lack of legitimate investment needs.
This ban has held strong for nearly five years. Only recently, in a significant policy reversal, the FCA announced that it will open retail access to crypto ETNs starting in October 2025. However, critics argue that this is a slow and insufficient step.
“It’s about time. For two and a half years, we… have been pushing to overturn the illogical ban on retail access to exchange-traded Bitcoin products… This restriction has only disadvantaged UK consumers and held back market growth,” Freddie New, Chief Policy Officer at Bitcoin Policy UK, told BeInCrypto.
In contrast, the US has already forged ahead. In early 2024, the Securities and Exchange Commission (SEC) approved spot Bitcoin exchange-traded funds (ETFs), a move that has since had a massive impact on the market. However, this action came with its own set of challenges. The approval followed a decade of rejections and only came after a federal court ruled in favor of their approval.
In addition to concerns over the UK’s cautious regulatory approach, friction points arise regarding how the country taxes crypto.
A Confusing Tax and Accounting Regime
The UK’s approach to crypto accounting under HMRC, the country’s tax authority, is a source of contention. The incoming Cryptoasset Reporting Framework (CARF) represents a significant development. Starting in January 2026, the HMRC will require detailed identity and transaction reporting from crypto users and platforms.
While designed to combat tax evasion, critics argue that CARF provides only an incomplete picture of an individual’s tax obligations and raises serious privacy concerns. The aggregated data fails to provide the detailed context needed for accurate tax calculations, potentially leading to unnecessary investigations.
Existing tax rules imposed by HMRC are also hard to follow. The regulator views crypto as an asset subject to Capital Gains Tax, which requires individuals to meticulously track every transaction’s original cost and value, including crypto-to-crypto swaps.
Adding to the complexity, HMRC has specific regulations, like the Bed and Breakfasting Rule, which prevents investors from selling a cryptoasset at a loss and immediately buying it back to reduce their tax bill.
This system is especially burdensome for active traders and often requires them to use specialized software to manage their tax reports. Compounding this, the government has reduced the tax-free allowance for capital gains, pulling an increasing number of small-scale crypto users into the tax net.
In contrast, the US system offers a clearer benefit for long-term holding. If an asset is held for over a year, it’s subject to a much lower profit tax rate. While both countries allow investors to use losses to offset gains, the US is widely considered more straightforward.
How the UK Can Regain Its Foothold
As other nations progress, the UK must adapt its policies to support the digital finance sector and maintain its foothold in the crypto race. Though its emphasis on necessary guardrails is vital in maintaining consumer confidence, the jurisdiction lacks a clear and balanced framework to foster innovation.
“The UK has the talent and potential, but it’s choking progress with overregulation,” Walker concluded.
The UK can always change its approach, but the speed of its action will be critical. How quickly it adapts its policies will determine whether it catches up or is permanently left behind.
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