An Alarm for the UK: The Reasons Behind Its Lag in the Global Bitcoin Competition

Despite the UK government’s ambition to be a global hub for digital assets, the situation suggests otherwise. The British crypto community is raising concerns, claiming that the nation is lagging in the global Bitcoin race.

Experts from various crypto organizations in the UK have informed BeInCrypto that the nation’s cautious stance hampers innovation and drives businesses abroad. This ongoing atmosphere will erode any competitive edge the UK once possessed in financial innovation.

A Lagging Financial Hub

The consensus among the UK’s crypto community is that legislative progress towards creating a competitive crypto hub is alarmingly sluggish.

As countries worldwide strive to set clear and comprehensive frameworks, even some of the UK’s prominent politicians have publicly commented on the matter.

Earlier this month, former Chancellor and current Coinbase advisor George Osborne published an opinion piece warning that the UK risks missing out on a second wave of digital asset innovation. He expressed worries that the country’s slow regulatory development allows other nations to forge 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 area mirrors this concern.

Is the FCA Protecting Consumers or Pushing Them Offshore?

The UK’s regulatory approach seems overly cautious. Experts suggest that the country’s excessive focus on regulation actively hampers its competitiveness.

“The UK claims to be a hub for digital assets, but the reality feels hostile. Slow approvals, excessive red tape, and constant uncertainty stifle innovation before it even begins,” remarked Jordan Walker of The Bitcoin Collective. 

This trend of regulatory action isn’t new. The enforcement-based regulation strategy was also employed during former US SEC Chair Gary Gensler’s tenure. Many in the crypto industry have linked this strategy to the U.S.’s struggles to maintain a competitive position in the crypto space.

A similar situation is unfolding in the UK. The current hostility has led to a significant debanking issue, where traditional financial institutions, complying with standards set by the Financial Conduct Authority (FCA), are cutting ties with crypto firms.

“The FCA’s approach isn’t protecting consumers; it’s harming them by restricting access and pushing opportunities offshore,” Susie Violet Ward, CEO of Bitcoin Policy UK, told BeInCrypto. 

The UK regulator’s classification of crypto assets has heightened these challenges.

The Problem with Asset Classification

The FCA currently applies a “same risk, same regulation” policy to all digital assets. This strategy overlooks the unique technical and economic characteristics of various cryptocurrencies.

The regulator has historically categorized all assets under a broad “high-risk, speculative investments” label. While this classification is somewhat accurate, it fails to differentiate between Bitcoin, a decentralized network with a fixed supply, and other types like meme coins or crypto tokens.

“We’ve witnessed companies exit the UK due to debanking, limited retail access to Bitcoin products, and a lack of clarity from the FCA. Operating here is more challenging compared to other jurisdictions that are faster and offer businesses the freedom to innovate,” Walker remarked.

By treating various assets alike, critics argue that this misclassification implements inappropriate regulations, creating confusion and unnecessary obstacles for legitimate businesses. 

Moreover, the regulator’s ban on the sale of certain crypto-related investment products has further slowed innovation.

Can the UK Catch Up to the US on Retail Crypto Products?

In October 2020, the FCA imposed a policy banning the sale, marketing, and distribution of derivatives and exchange-traded notes (ETNs). The regulator cited security concerns, price volatility, and a lack of genuine investment needs.

This ban has remained in place for nearly five years. Recently, in a considerable policy shift, the FCA announced it will allow retail access to crypto ETNs starting in October 2025. However, critics maintain that this is a slow and inadequate response.

“It’s about time. For two and a half years, we’ve been advocating for the reversal of the illogical ban on retail access to exchange-traded Bitcoin products… This restriction has only put UK consumers at a disadvantage and hindered market growth,” Freddie New, Chief Policy Officer at Bitcoin Policy UK, told BeInCrypto.

In contrast, the US has already taken significant strides. In early 2024, the Securities and Exchange Commission (SEC) approved spot Bitcoin exchange-traded funds (ETFs), a move that greatly impacted the market. However, this action faced its own challenges, as it followed a decade of denials and was only approved after a federal court intervened.

In addition to concerns about the UK’s cautious regulatory stance, there are issues related to 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, has become contentious. The upcoming Cryptoasset Reporting Framework (CARF) signifies a notable shift. Starting in January 2026, HMRC will mandate detailed identity and transaction reporting from crypto users and platforms.

Although intended to curb tax evasion, critics argue that CARF provides only a partial view of an individual’s tax responsibilities and raises serious privacy issues. The aggregated data fails to deliver the context necessary for accurate tax assessments, potentially resulting in unwarranted inquiries.

Current tax regulations from HMRC are also convoluted. The regulator considers crypto an asset subject to Capital Gains Tax, requiring individuals to carefully track the original cost and value of every transaction, including crypto-to-crypto exchanges.

Moreover, HMRC imposes specific regulations, such as the Bed and Breakfasting Rule, which prohibits investors from selling a cryptoasset at a loss and quickly repurchasing it to minimize their tax bill.

This system is particularly burdensome for active traders, often necessitating specialized software for tax report management. To make matters worse, the government has reduced the tax-free allowance for capital gains, drawing more small-scale crypto users into the tax net.

Conversely, the U.S. system provides clearer benefits for long-term holding. If an asset is held for over a year, it is subject to a significantly lower profit tax rate. Both countries permit investors to offset losses against gains, but the U.S. is generally seen as more straightforward.

How the UK Can Regain Its Foothold

As other nations advance, the UK must refine its policies to bolster the digital finance sector and sustain its position in the crypto race. Although its emphasis on essential safeguards is crucial for consumer confidence, the jurisdiction currently lacks a clear, balanced framework conducive to innovation.

“The UK possesses the talent and potential, but it’s stifling progress with excessive regulation,” concluded Walker. 

The UK has the opportunity to change its approach, but the speed of its response will be pivotal. The velocity with which it modifies its policies will determine whether it catches up or remains perpetually behind. 

The post A Wake-Up Call for the UK: Why It’s Falling Behind in the Global Bitcoin Race appeared first on BeInCrypto.