What do Keir Starmer and Rachel Reeves think of Bitcoin? We don’t know, and perhaps neither do they. But with Trump’s Bitcoin-bullish incoming administration, excitement around which has sent the price of Bitcoin soaring towards $100,000, the Labour government’s vague position on cryptocurrencies is becoming untenable.

And vague it certainly is: the Labour election manifesto made no mention of cryptocurrency, and it was also ignored in the October Budget. The latter caused frustration in the industry, with the outlet Banking Risk and Regulation — a service from FT Specialist — reporting that UK digital assets leaders “have expressed disappointment at Labour’s failure to use the Budget to provide industry clarity”. 

After years of mere lip service from the Conservatives about support and positive regulation, the crypto industry was hoping for change and clarification. Instead, Labour has said little, let alone actually done anything.

One mistake the UK government has historically made is a failure to distinguish between Bitcoin and cryptocurrency in general, betraying a lack of knowledge about the technology and its supporters. General statements about “crypto”, and making Britain a “crypto hub”, à la Rishi Sunak, just sound vague, and indicate tolerance rather than active engagement. Labour has simply taken up the baton from the Tories.

A second notable habit of the UK financial leadership, namely the Financial Conduct Authority and the Bank of England, is to skirt around the core reason for Bitcoin’s existence: the enforced inability for any individual or entity to control the money supply. As a result, their explainer pages are rubbish. The FCA refuses to acknowledge Bitcoin as a currency in any way, lumping it in with all “cryptos” in its inaccessible introduction, while the Bank of England says “its value could fall to zero…making it worthless.” The FCA also claims, wrongly in the case of Bitcoin, which is not influenced by any sole entity, that “cryptos are developed and run by groups, individuals or companies.”

So far, the Bank of England and FCA seem to have decided that they can write Bitcoin’s currency status out of existence. The problem is that by many definitions, it is a currency, with the capacity to become a successful one, and is impossible to explain if this is not acknowledged. This BBC Bitesize summary, aimed at children, provides a far more accurate definition and summary of Bitcoin than either the FCA and B of E. The benefits of Bitcoin as a currency can only be explained if the premise that “printing too much money is bad” is first accepted, and the BBC Bitesize explainer works for this reason. On the subject of our current monetary system, it reads scathingly:

The “normal” money we use today is actually rather unusual in the history of money, in the sense that it is no longer itself precious (like gold coins). Now if you read the promise on a £10 note, it says (in very small letters): “I promise to pay the bearer on demand the sum of ten pounds.” (Next time you find a tenner in an old pair of jeans – have a look.) That’s not too much of a promise if you consider that all the backing authority (like the Bank of England) has to do is to print another piece of paper to satisfy that promise. As more and more money is created, it erodes the value of the existing money in circulation.

The Bank of England can hardly write something similar when it fundamentally disagrees. The Critic’s own Tim Congdon has written of the “groupthink” among leading economists, who all reject a connection between money supply and inflation. As an economist who, instead, sees a large increase in the money supply as directly linked to excessive and harmful inflation, Congdon feels like a “heretic” within his own discipline.

As Bitcoin was founded on this exact premise — that inflation is the result of an increased money supply — it is hardly surprising that institutions that disagree, like the Bank of England, consider it “worthless”. Embedded in the first mined Bitcoin block are the words: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”. As traditional money fails, Bitcoin rises from the ashes — so the Bitcoiner narrative goes.

An awkward subject for a fun video “explainer” from the heart of the financial establishment. As a result, the Bank of England is incapable of explaining Bitcoin on its own terms without looking stupid, and can only label Bitcoin an intrinsically worthless entity, the only purpose of which is to be traded to make money, rather than facilitating the buying and selling of other things (as a currency), or acting as a long-term store of value.

The question is how long it can sustain that position in the face of Bitcoin’s relentless survival. With a US government which says the exact opposite, and acts accordingly, it surely can’t be long. If the incoming Trump administration continues in that direction, it will be interesting to watch how the UK’s financial establishment behaves.

So, what of the United States and its president-elect? Trump has cast aside his once-negative position and is now emphatically pro-Bitcoin and supportive of cryptocurrencies in general. In the election build up he used Bitcoin to buy burgers for his supporters, headlined the Bitcoin 2024 conference, and vowed to fire Gary Gensler, the notoriously crypto-sceptical head of the Securities and Exchange Commission, “on day one”.  (“Firing” Gensler might have been complex, but on 21st November Gensler announced his intention to stand down on Trump’s inauguration day.) Most significantly, Trump said he would establish a “strategic Bitcoin reserve”.

Since Trump’s election win, the price of Bitcoin has surged, rising by over 45 per cent and approaching $100,000 for the first time. The upward trend has been fuelled not just by optimistic speculation about Trump’s pre-election promises, but by almost daily Trump-related crypto news. Early on, Trump appointed crypto-fan Elon Musk to lead a new “Department of Governmental Efficiency”, or D.O.G.E. for short: a joke based on the meme-inspired dogecoin cryptocurrency. This week, on the 19th November the Financial Times revealed that Trump’s social media company, Truth Social, “is in advanced talks to buy” cryptocurrency infrastructure provider Bakkt. On the 20th November Bloomberg reported that the President-elect’s team is vetting candidates for a possible new White House crypto position, and that crypto industry CEOs met with Trump this week. And on the 21st November Gary Gensler resigned. 

Whether or not the strategic Bitcoin reserve is established, the above suggests that Trump’s crypto-positivity wasn’t just aimed at garnering voter support or donations: he’s serious about it, he is embracing the philosophy around it, and he is surrounding himself with Bitcoin devotees. 

… having no stated position on Bitcoin is becoming increasingly untenable

So, while the UK government doesn’t have to agree with Trump, having no stated position on Bitcoin is becoming increasingly untenable. Trump’s election win has made the UK’s own unclear position look absurd. (If Labour continues to be vague, the Conservative party could set itself apart by doing the opposite: take note Kemi Badenoch.)

Going forwards, if the Trump administration, once established, continues in this direction, and other countries follow suit in terms of creating a friendly environment for crypto companies and retail buyers, it would be fiscally sensible for the UK to do the same.

How would a US Strategic Bitcoin Reserve work, and what would it mean? One path would be through the Bitcoin Act of 2024, proposed by Senator Cynthia Lummis. If enacted, the legislation would prevent the US from selling any Bitcoin it already owns through confiscation, and could initiate regular purchases with the intention of holding it long term. The Act would enshrine into policy the “Bitcoiner” perspective that Bitcoin has innate value and can act as a long-term investment. Given the US dollar’s status as the leading reserve currency, and the likelihood that other countries would then buy Bitcoin, US use of Bitcoin as a reserve asset would cause financial global upheaval.

The UK would therefore do well to prepare for such an eventuality. With a Bitcoin-believer at the helm of the US government, whatever Starmer’s government really thinks of Bitcoin, it will have to learn to like it. 

Fortunately, Britain has a head start as it is already the second largest Bitcoin holder after the US. Rachel Reeves as chancellor has inherited 61,245 bitcoins. Before Trump won the election, those bitcoins were worth approximately 3.2 billion pounds. At the time of writing, their valuation has increased to 4.8 billion. Meanwhile, the German state of Saxony sold 49,858 seized bitcoins in July for 2.6 billion euros; as they would have sold for 4.7 billion euros today, it is no doubt wishing it hadn’t. So, if strategically buying Bitcoin currently sounds like a stretch, Reeves could at least commit to keeping the UK’s Bitcoin stash safe for the long term.

Like it or not, Trump is setting an agenda and we would do well to take note

Value lies wherever we choose to place it; which is not to say that all choices are equally logical. Whether or not Bitcoin itself is a good idea is subjective, but given its endurance, understanding it is long overdue. Doing so requires at least temporary engagement with the economic ideas on which it was founded. Bitcoin’s ongoing survival may even force economists to question their “groupthink”, which can only be a good thing.

With the relentless Bitcoin-positive trend of the Trump administration, dismissing it — for economists, countries, and financial institutions — will cease to become a realistic option. Like it or not, Trump is setting an agenda and we would do well to take note — sooner rather than later.