Britain likes to see itself as a leader in financial innovation. Since 2010, the government has touted its ambitions in green finance, yuan trading, Islamic bond issuance and, more recently, cryptocurrencies.

But the reality doesn’t match the rhetoric. While other countries have made great strides in blockchain and digital assets this year, the UK doesn’t seem to care that much.

Talk of blockchain bonds and crypto innovation is mostly just talk. In 2022, digital bonds accounted for just 0.02% of the $7.3 trillion raised by traditional methods.

The idea of ​​using blockchain to issue government debt, or gilts, has been met with skepticism. This lack of interest is notable when you consider the government’s opposition to the widespread use of Bitcoin.

Britain is unwilling to change

The UK Debt Management Office (DMO) apparently sees little benefit from blockchain technology. Issuers see it as a distraction from their main job, which is issuing bonds.

Investors weren’t interested either. Digital bond platforms were incompatible, and this lack of standardization stifled any chance of secondary market growth.

What about cryptocurrency startups? Oh, they’re pretty much locked out.

The UK’s financial markets are overly regulated and incumbents (big banks and financial institutions) are not eager to adopt technology which could exclude them from the equation. It’s a chicken and egg situation.

Digital bonds would need to be issued in large quantities to justify the cost, but without an integrated system, no one wants to take the risk. So nothing changes.

Even if the government wanted to push for blockchain bonds, integrating them into banks’ legacy systems would be prohibitively expensive.

The Australian Stock Exchange tried something similar about two years ago but failed with $171 million.

Regulatory issues

Regulation is another issue. The UK’s approach to cryptocurrencies has been slow and out of touch;

The UK’s Financial Conduct Authority (FCA) has made some efforts to enforce anti-money laundering protocols and tighten cryptocurrency advertising rules, but that’s about it.

Only a small fraction of crypto assets are regulated, leaving investors and businesses in the dark about what is and is not allowed. The UK is not mature enough compared to the EU;

The EU’s Markets in Crypto-Assets Regulation (MiCA) is much more comprehensive, with clear guidelines ranging from consumer protection to market stability.

The UK has hinted that it is not in favor of MiCA because they believe it opens the door too wide to new technologies like cryptocurrency.

UK investors don't care about cryptocurrencies

British investors have also not been rushing into the market. Cryptocurrencies’ notorious volatility makes them uneasy.

Retail participation has dropped significantly. Add to that the government's tax changes and it all makes sense.

From April, the tax-free limit on cryptocurrency capital gains has been cut from £6,000 to £3,000, making Bitcoin and its peers far less attractive investments.

When the potential tax hit is so large, why would anyone want to take the risk of investing in something that is already so unpredictable?

The media is filled with stories of cryptocurrency failures, frauds, and scams. These stories have dominated the narrative for so long that any positive news now quickly fades into the background.

To many people out there, cryptocurrency is just a playground for criminals and scammers.

Culturally, the UK is risk-averse. Unlike the US or Asian markets, the UK tends to be extra cautious about speculative investments. This conservative approach obviously applies to cryptocurrencies as well.

All in all, government interest in blockchain is superficial at best, and there is little incentive for the financial sector to change. It probably never will.

Because if there’s one thing the British are known for, it’s that they almost never change their minds.