How Brexit will affect Bitcoin and the blockchain industry

Baozou Commentary : Brexit will also have an impact on the Bitcoin and blockchain industries. The two main issues faced after Brexit are: the accessibility of electronic currency licenses in the European Economic Area and the acquisition of talent. Because licenses can be used between EU member states, it is not clear whether the UK will retain the license power after Brexit, so it will have an impact on Bitcoin startups with electronic currency licenses. Everything has two sides. Brexit will lead to more people buying Bitcoin as a way to preserve value, and companies can use Bitcoin to pay wages, which is faster and more convenient.

Translation: Nicole

On June 24, 2016, during a business trip, I was walking down the street in Madrid and heard people whispering in every corner. I don’t speak Spanish well, but there was one word I understood: “Brexit.” During my travels in Europe over the past few weeks, visiting Amsterdam, Paris, and Madrid, everyone was talking about Brexit. However, that day, almost everyone in Europe was talking about the time of Brexit, even foreigners who didn’t speak English. Brexit was completely unexpected and had many confusing implications for the Bitcoin and blockchain space.

By Jonathan Chester

London is to the European Union what Manhattan is to the United States. Global finance depends on “The City” as much as it does on Wall Street. In my travels, when I meet entrepreneurs, I always like to ask one question, “Who is your banking partner? What regulator is regulated by?” London’s dominant financial services industry represents 9.6% of the UK’s GDP, and London can rival New York, the world’s largest financial center, and is already supervised and maintained by the Financial Conduct Authority (FCA), the UK’s banking regulator. This has made the FCA one of the most respected financial regulators in Europe.

Even if blockchain presents itself as a trustless system, trust is still required when working with other companies to build private blockchain technology or applications on top of a public blockchain. From a trust perspective, there are clear benefits to establishing a partnership with a UK-regulated bank, especially when talking to entrepreneurs. Trust is especially important at a time when blockchain technology is receiving a lot of negative press and skepticism. All of these concerns could be dispelled immediately if the UK regulators had their blessing.

Everything can be improved. One of the biggest benefits of being a member of the European Union is that you can get a financial license. When you get a financial services license in one country, it is also valid in other EU member states, which means you don’t have to spend money to apply for applications and bonds in each country, nor do you have to learn the language of each country and wait for the slow review process in each country. This is completely different from the US model, where every state requires a license, except Montana.

Now that the UK is trying to leave the EU, it is unclear whether they will retain the licensing power that is crucial for startups in the Bitcoin and blockchain industries, especially when those companies choose to have their headquarters in Europe.

I recently spoke with Marieke Flament, General Manager for Europe at Circle, a bitcoin blockchain company that has raised $130 million in funding and recently received an e-money license in the UK, partnering with Barclays.

The two main issues after Brexit are: the portability of e-money licenses in the European Economic Area and the acquisition of talent. London is a wonderful city that brings together many people from different countries. The London Financial District is a financial center that is dealing with various European markets. In daily life, many people speak French, Spanish or Russian. This diversity is currently in danger.

The British working class caused Brexit to happen, but it is London that will be the first city to feel the brunt of the impact. Talented foreigners flocked to London’s financial district, but now their future is more uncertain. Fixed boundaries were a major driving force behind the decision to leave the EU, and companies in the UK have been forced to outsource to other European countries. Although the UK’s membership of the Single Euro Payments Area is not directly affected by Brexit, if that changes, we can imagine other things, such as membership of SEPA, which is unlikely but possible. This uncertainty means that hiring and paying wages will become more difficult in an already competitive market. I asked Flament what Circle would do differently, and Flament responded:

Nothing will change between the UK and the EU in two years. The only change Circle wants to make is to be able to expand more rapidly in Europe in the next two years. From what I understand from politicians and regulators, once a UK licensed entity can work in other countries, it can still do so, even if it is stripped of passporting powers. However, after two years you can't use these licenses in any new countries.

While it makes sense for Circle to expand into other countries, smaller Bitcoin and blockchain startups that want to get a European license can greatly reduce risk by getting a license elsewhere. This process is very expensive and takes a year, leaving startups with only a year to expand into other markets without the same deep pockets that Circle has. This is clearly unacceptable to startups.

There is talk of Frankfurt being the natural successor to established financial companies, Berlin taking on the responsibility for startups and London no longer having to bear this responsibility, but this does not necessarily apply to public blockchain startups. While Germany has not shown a particular welcome for public blockchain companies, Luxembourg has positioned itself as the European capital of the Bitcoin industry, having issued two financial licenses to two Bitcoin companies.

Luxembourg is in the heart of Europe and is the main European regulator for institutions like Paypal, Amazon Payments and Rakuten Ichiba, and it’s very easy to deal with regulators. When I was traveling in Europe, I was able to talk to Nadia Manzari, the head of the Financial Supervision Commission. They are very welcoming to financial innovation and it’s very easy to talk to them. So when I talked to industry executives, I started to see the trend in Luxembourg.

Although Brexit will cause many companies to rethink their European strategies, it will also bring benefits to the industry. Bitcoin first became a risk-free asset during the Cyprus banking crisis in 2013. With the current Brexit concerns still on Bitcoin, Bitcoin recently surpassed the $10 billion market cap threshold and the daily liquidity has increased accordingly. Gold has always been the first choice of risk-free asset in uncertain times, and now Bitcoin is playing this role. Although Bitcoin's price volatility is high, Bitcoin transfers are as fast as wire transfers. As a de facto intermediary-free system, the government can only regulate the company that holds the user's funds. Users can move funds at their command for free through open source technology.

When it comes to payment barriers, such as how Brexit will affect their position in SEPA, blockchain will play a big role. Legally paying employees across international banking barriers is why Bitwage was founded, so the UK rebuilding a barrier between it and Europe is an opportunity for us, not a problem. While the normal banking system will suffer from such changes, public blockchains can enable near-instant and free settlement between the UK's fast payment system and the EU's SEPA. We will ensure that wages can be transferred quickly and securely, regardless of the turmoil that will arise when the UK and the EU separate.