(Kitco News) - 2022 has been a volatile year on many fronts as wars, market downturns and political shakeups have kept both citizens and investors anxious.
One of the biggest stories of the year has been the tumult and turnover in the office of the Prime Minister of the United Kingdom, which saw three different leaders in the span of four months amid political scandals and worsening economic conditions.
Now that Rishi Sunak has been sworn in as the new PM, things have started to calm down and financial markets have enjoyed a measure of stability in a country that just a few weeks ago was facing the prospect of having to bail out its pension system.
As to how the new Prime Minister could affect cryptocurrency adoption in the country, Jake Boyle, Chief Commercial Officer at cryptocurrency broker Caleb & Brown, noted that “out of all the recent PMs that we've had on this side of the world, he's the only one who has actively said things that would be interpreted as positive sentiment to cryptocurrency.”
Boyle, who is based in London, highlighted the fact that Sunak has made reference to certain nonfungible token (NFT) projects that crypto fans are familiar with – including Bored Ape Yacht Club and crypto punks – which indicates a deeper knowledge of the sector than the average public. He has also advocated for a basket of currency approach when asked about the Bitcoin vs. Ethereum debate, which signals a better understanding of the promise that projects outside of the main two cryptos have to offer.
The major area of concern related to Sunak is his focus on central bank digital currencies (CBDC). Boyle said that many crypto investors, especially the early adopters, would say this focus “goes against the whole idea of cryptocurrency being something that was born post-global financial collapse of 2008.”
Crypto is “meant to be more ‘power to the people’, and ‘in internet and technology and mathematics we trust’ – as opposed to ‘in government we trust’, so it's a little bit of a catch-22 situation,” Boyle said.
On the bright side, the exploration of CBDCs show that the government is actively exploring the potential applications of blockchain technology in the financial system, which means that they see a future in the industry, he added.
While there are currently bills working their way through both the UK and U.S. legislative systems, many such developments have stalled or failed to produce any new updates, which Boyle said indicates that the governments are focused on bigger issues happening around the world given that the crypto market cap is only around one trillion dollars.
“It's just not big enough to warrant being a major focal point for an economy and a political sphere that's as chaotic as it currently is,” Boyle said.
The recent crash of the British pound has led to confusion and uncertainty amongst investors who are now just looking for a way to maintain their value, even as it managed to recover some of its losses against the U.S. dollar following Sunak’s appointment.
“At the end of the day, whilst it does look like the change in PM is a good thing for cryptocurrency, if I had to make a guess, I would say that cryptocurrency legislation is extremely far down the list of priorities, unfortunately,” Boyle added.
The need for regulations
On the topic of institutional adoption, Boyle suggested that it's unlikely that a majority of institutions will get involved in crypto until clear regulations are passed, as most prefer to have a solid, predictable regulatory framework to know what is and is not permitted.
Retail investors, on the other hand, are less concerned with regulations and will typically make their own decisions based on a variety of influential factors, regardless of what the government’s regulatory stance is.
“It's been very, very rare that we've had clients reaching out saying, ‘well, I'm not going to invest because the Prime Minister said this’, or,’ I'm not going to invest for this reason’,” Boyle added.
Following the recent plunge and recovery in the pound, Caleb & Brown saw a surge in client signups, transactional volume and trade count, highlighting the push by many to locate a secure place to hold their wealth.
“Pretty much every metric that we use as a company to give an indication of whether the clients are active or not, be it from calls to emails, client engagements, coffee, catch-ups, no matter what measure it is, they've significantly increased since Bitcoin and Ether rallied more than 10% near the end of October,” Boyle said.
The vast majority of the firm's 23,000 trading clients are retail clients. The various types of clients served include high-net-worth individuals, family trusts, and corporate accounts. While most accounts are retail, institutional clients tend to be behind the larger trade order sizes on the platform.
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| The UK and Australia move forward in their efforts to regulate cryptocurrencies |
Sectors attracting the most interest and investment
As far as which sectors of the crypto economy are receiving the most attention from both institutional and retail investors, decentralized finance (DeFi) and non fungible tokens are at the top of the list, along with blue-chip projects.
“From an investor standpoint, I would suggest that from the clients that are contacting us and from the other companies we work with, confidence in DeFi is on the rise, debatably at an all-time high,” Boyle said.
The relative stability of Bitcoin and Ethereum over the past month or two has also caught the eye of institutional investors, especially with BTC in the $18,000 to $21,000 range, which is “an optimistic sign that there is support there to sustain it throughout the years.”
Aside from the next Bitcoin halving, which is not expected until 2024, Boyle believes that the biggest factor influencing the crypto market is the Fed.
“There are so many variables that people will talk about, whether it's coming from Parliament or the dollar. There are numerous variables, but at the end of the day, it's the stance of the Fed in the USA, which has ultimately been driving a lot of the volatility we've seen this year.”
And with no signs that the Fed intends to pivot anytime soon, Boyle suggested that there is “a slightly longer road ahead,” and he doesn't “think the market will close the year too optimistically.”
Taking that into consideration, he believes it’s unlikely that the appointment of Rishi Sunak as Prime Minister will have a significant impact on the crypto industry, as there are larger factors influencing adoption.
“Let's wait and see what happens in November when the autumn budget comes out,” Boyle said. “I think that'll probably be the closest tell-tale sign that we'll get. So until then, all eyes are on what the Fed’s moves are going to be.”
