First they ignore you, then they laugh at you, then they fight you, then you win. So goes the old saying about political change. Over the past decade, the world of cryptocurrency — digital systems that work like money, stored on a distributed ledger called the blockchain — has gone through phases one to three. It’s now fast approaching the fourth: winning.
Having been first uncomprehending, then merely suspicious, then actively hostile, governments in the West are increasingly coming round to the idea that they can coexist with crypto. So much so that in the next couple of years, new legislation and regulation around the world promises to give the world of ‘digital assets’ a way to sync up with the financial services industry. Right now, the EU, the US and the UK are all drafting separate regulatory systems. Which one comes up with the most useful and accommodating new laws may determine the future home of the crypto world. Which brings us to one of those juncture-type moments that, like the Big Bang of financial deregulation in 1986, could break in London’s favour.
The US, having driven most of this technology forward, should be its natural home. But lately crypto has become something of a political hot potato between Democrats and Republicans, especially in the wake of the FTX scandal and various missellings. The Democrats have taken up a hostile position. And with the Securities and Exchange Commission dragging its feet on regulation, some have spoken of a ‘war on crypto’. Meaning that there is a small window of opportunity for somewhere else to jump in, one that Rishi Sunak (MBA, Stanford) would like to crawl through. The Prime Minister is hoping to repeat the trick of Silicon Roundabout, where London achieved early dominance in a ‘fintech revolution’ lead by the likes of Monzo, Starling and Wise (formerly TransferWise). The PM is hugely enthusiastic: he has the same cargo cult outlook of politicians everywhere when it comes to the dream of tech hubs, plus a more personal interest, from when he worked at Goldman Sachs and various hedge funds. He was recently in personal talks with the Winklevoss twins (who may or may not have given Mark Zuckerberg the idea for Facebook) about bringing their Gemini crypto business to London after they fell out with US regulators.
Sunak even went so far as to issue a personal statement last month, when US venture capitalist firm Andreessen Horowitz announced it would be opening its first over-seas branch in London: ‘It is testament to our world-class universities and talent and our strong competitive business environment.’
Andreessen Horowitz’s cone-headed co-founder, Marc Andreessen, is one of the most unerringly successful investors on the planet. In 1995, Andreessen’s Netscape became an early tech giant, cutting him a $56 million (£44m) pay cheque. Twelve years later, his next big venture, OpsWare, sold for $1.6 billion. In 2009, he teamed up with Ben Horowitz and managed to turn a $300 million venture capital fund into $2.7 billion via investments in the likes of Twitter, Airbnb, Skype and more recently, the cryptocurrency platform Coinbase.
By Christmas, Andreessen Horowitz, who style themselves as ‘a16z’, will have their staff charged with investing in new-wave internet and crypto business. They’ll also be bringing their famed tech accelerator with them. With the inclement US legislative weather, there are apparently 20 or more companies looking to follow in their wake. Others are less bullish. In an editorial for Fortune Crypto, editor Jeff John Roberts in New York took aim at an entire continent.
‘Europe can’t innovate,’ he wrote. ‘Yes, it’s impolite to say that, but covering Silicon Valley as a tech reporter for the better part of a decade, I learned first hand that the place has a unique mix of culture, brain power and resources that can’t be replicated. That’s especially the case for Europe, where the tech industry’s most prominent firm is Rocket Internet — whose claim to fame is ripping off the ideas of Silicon Valley start-ups and customising them for local markets. The region’s most prominent tech export, meanwhile, is bureaucracy, notably the Byzantine GDPR privacy regime, whose primary achievement has been to enrich Eurocrats and lawyers.’
So what, then, is London? Is its crypto farm just its traditional dominance in financial services biz with some code monkeys bolted on to the side? And in a world now actively looking for a second city for the nation of crypto, what do we have to offer potential investors? Is it ever realistic to imagine we could go toe-to-toe with Silicon Valley? Or will the UK be overtaken by a younger, hungrier Eastern rival: a Dubai or a Singapore?
After all, Sunak’s fellow Goldman Sachs alumnus, Emmanuel Macron, is also pushing hard for Paris to win the war. Paris has invested heavily in projects such as Station F, ‘the world’s biggest tech incubator’, with 1,000 start-ups across a single campus. In Switzerland, an hour from Zurich, the town of Zug is billing itself as ‘Crypto Valley’, hosting 400-odd fledgling companies — making it perhaps the only town of 30,000 with its own Ferrari dealership. Meanwhile, in Lisbon, Portugal is still handing out investor visas like confetti. In a business built around decentralisation, 300 days of sunshine a year can come with certain advantages for global nomads.
London, meanwhile, is relying on its strength in depth. The lawyers, financial services, programmers and ancillary industries that have long made the City a time-zone titan. These will be combined, it hopes, with the right kind of fresh legislation: not too tough, but not so loose that the sector loses safety and clarity.
‘But [Roberts] may have a point,’ suggests Geo Kendrick, head of crypto research at the London headquarters of Standard Chartered Bank. ‘That’s because you have the scale and access to postgrad students from the universities on the West Coast.’ I ask him to name a big and innovative UK crypto success story. He’s unsure what would qualify. ‘A lot of the [cryptocurrency] coins and such all come out of America... insofar as funding goes, the access to capital they have is in a different league.’
Nathalie Oestmann is the chief operating officer of Outlier, a Web3 accelerator that works on many of the same principle as a16z’s more celebrated version. In exchange for a percentage of the business, it funds and mentors start-ups in this still-emerging space. ‘We put about 200 companies through the accelerator programme every year.’
Oestmann is an American who has spent the past 20 years in London. She was here when the fintech boom kicked off around 2015 and it’s from there that she has found her way into the blockchain world. She sees London as already having a head start. ‘The UK was by far leading the way in fintech space — way ahead of the US. And so I think that’s where the UK has a chance again, right now, because there’s a lot of fintech people that have moved into the Web3 space. It’s a natural evolution for us.’
London’s not a Silicon Valley world. People are a bit cautious, a bit more grown-up. There’s less of the bitcoin- bro look. That’s good if the industry is going to be taken seriously
Increasingly, there is also a question mark over where top tier coding talent feels it can thrive. For years, San Francisco would have been the default answer. But San Francisco is no longer what it was. Issues that seemed annoying or solvable five years ago are, post-Covid, seeming like a function of what is sometimes called Detroitifcation. These days, San Francisco is both expensive and crime-ridden. Normally, cities are either one or the other — and with vast distances to commute between the various campuses of the big platforms such as Meta and Apple, many are coming to the conclusion that the stunning bay views aren’t worth the hassle.
London is not immune to these trends. It has in its own way become hellishly expensive — and can feel increasingly prone to disorder. But Oestmann just doesn’t think the situation is comparable. ‘San Francisco is pretty empty at the moment, and London is still thriving. I really don’t see it in decline.’ There is a sense in which the personal profile of the London business will inevitably be quite different. Many are veterans of the Canary Wharf world, looking for a second or third act in their careers. ‘London has a lot of the intellectual capital,’ argues Jamie Crawley, a reporter on the cryptocurrency news site CoinDesk. ‘But it’s not a Silicon Valley world. People are quite softly spoken, a bit cautious, a bit more grown-up. There’s much less of the bitcoin-bro look. And I think that’s a good thing, if the industry is going to be taken seriously by the financial sector.’
The UK was by far leading the way in the fintech space — way ahead of the US. And so I think that’s where the UK has a chance again
‘Five years ago the bitcoin bro look might have been true,’ agrees Kendrick, at Standard Chartered. ‘The profile now has softened.’ Kaitlin Argeaux is the co-founder of Crypto Mondays London, a Meetup group designed to educate and elevate the London community. She started it in 2018, “back when it was just me and three guys at that first meeting. It’s a really different profile now. We have about forty per cent women. And we had about a hundred people this Monday.” She’d rank her usual crowd as ‘ten per cent experts, sixty per cent intermediates, and thirty per cent beginners’.
‘I’m really bullish,’ she says. ‘I think this is just the start, in so many ways. One thing we’re trying very consciously to do with Web3 is not to repeat the mistakes of Web2. This isn’t meant to be a competitive environment, we want to make it more inclusive.’
In recent weeks, all the talk has been of the end of Crypto Winter: the nine-month market slump that began around the time of the FTX collapse late last year. No longer down around the $17,000 mark, bitcoin has finally surged above $30,000; Crypto Spring is finally with us. It has made the likes of Argeaux optimistic about a real take-off moment for the British scene. The experts will tell you to blot out the noise of the short-term — the price zags, the strategic pivots — and focus on the bigger picture: growth itself. Blockchain is beginning to agglomerate. For a long time merely an interesting placeholder, it is gradually becoming a real industry, where products have a purpose. There will be individual winners and losers, sure. Picking them will be hard. But the broader trend line will inevitably be upwards.
It is a point that Kendrick comes back to. ‘If you think about this in comparison to the tech world in the late Nineties, I would say Amazon has listed, which was in ’97. We’re not in 1993. We’re not in 2007, but some of the genuine long-term winners have arrived. So to use the Amazon example, we might still have a pets.com hanging around waiting to blow up. It’s at that midpoint. But I think when we get regulation, that becomes the main driver.’
As he points out, once a fraction of your pension fund is into crypto, crypto is no longer the province of the black T-shirt brigade up in Shoreditch. Now it’s in a suit, standing up on the 8.15 to Cannon Street. The vape pens are extinguished. The fedoras are binned. It’s going legit — laugh no more.