Relations between the Government and Bank of England have been tested recently, to say the least. So one wonders how Andrew Bailey’s broadsides against the cryptocurrency world have gone down with Rishi Sunak, who has outlined plans to make Britain a “global crypto asset technology hub”.
The Bank’s Governor has said Bitcoin has no “intrinsic value” and that cryptocurrencies create “an opportunity for the downright criminal”. Last year he confessed he was sceptical about crypto assets and called them dangerous for ordinary Britons.
The Financial Conduct Authority (FCA) has also moved against cryptocurrency companies in action as well as words, denying licences to all but a handful of online exchanges, publicly calling out others, and repeatedly warning consumers that they could lose everything by investing in digital coins or non-fungible tokens (NFTs).
Apparently nobody got the message at The Treasury. Under Number 11’s orders, the Royal Mint is proceeding with plans to sell an “NFT for Britain” later this summer, in an apparent endorsement of the highly-speculative market.
Sunak announced the decision in April, saying the decision was emblematic of the UK’s forward-thinking approach to technology.
We are still waiting to see what the 1,100-year-old institution best known for selling rare coins comes up with (A “Rishi NFT” apparently made it no further than the drawing board).
The idea was mocked at the time as a publicity stunt, but whatever its final form, it looks even more ill-judged now, after a collapse in the market for NFTs.
NFTs, or non-fungible tokens — effectively receipts that show someone owns a piece of digital art — became the Collins dictionary word of the year in 2021 as sales of cartoon apes and digital football stickers exploded.
Interest in them, as well as cryptocurrencies such as ethereum, erupted as a second year of lockdowns convinced much of the world that we would be spending the rest of our lives in virtual reality metaverses in which digital assets were just as important as physical ones.
But the bottom has fallen out of the market this year. Weekly sales peaked at around £1.4bn in August, fell to £370m by the time of Sunak’s announcement in early April, and currently sit at £112m, according to tracking website Non Fungible.
Slumping interest in NFTs are an embarrassment for the Treasury, but promoting the tokens is a questionable idea whatever the state of the market.
They confer no legal rights over the image in question and have repeatedly proved vulnerable to hacking (last week the actor Seth Green was forced to halt work on a TV show based on an NFT he owned when it was stolen). As with much of the bubble-prone crypto industry, interest in NFTs is based largely around the expectation that the tokens will increase in value, rather than any fundamental value.
If the NFT for Britain was merely a publicity stunt, it would be a cringeworthy but ultimately harmless one. The bigger risk is that the Treasury’s embrace of the tokens is seen as a seal of approval that encourages individuals and institutions to invest.
Nor is it a one off. Although the NFT announcement garnered much of the attention, the Treasury is pushing ahead with plans to become a global hub for crypto. John Glen, the Economic Secretary to the Treasury, said last month that the UK was “open for crypto businesses” and that the Government wanted it to be on the “ground floor”.
This includes potentially issuing government debt using the blockchain technology that powers Bitcoin, and legislating to allow stablecoins – cryptocurrencies whose value is tied to a sovereign currency such as the pound or dollar – as legal forms of payment.
Awkwardly, this month has seen one of the world’s biggest stablecoins, USDTerra, collapse amid a historic loss of confidence.