Wake-up Calls for the UK: Why are they falling behind in the Global Bitcoin Race?

The UK government has expressed its desire to be a global hub for digital assets, but reality tells a different story. The UK’s crypto community is wary, claiming that the country is behind in the world’s Bitcoin races.

An expert at the UK Crypto organization told Beincrypto that the country’s careful approach would reduce innovation and drive business offshore. This ongoing environment evaporates the competitive advantage the UK was using in financial innovation.

A delayed financial hub

The general consensus among crypto communities across the UK is that the legislative inertia fostering competitive crypto hubs in the region is surprisingly slow.

As countries around the world compete to develop clear and comprehensive frameworks, even some of the UK’s leading politicians have made public statements about the situation.

Earlier this month, former Prime Minister and current Coinbase advisor George Osborne published an opinion piece claiming that the UK risks missing a second wave of digital asset innovation. He expressed concern that the country’s slow regulatory advancements could allow other countries to move forward.

“What I see makes me worried. I’m not an early adopter. We allowed ourselves to be left behind,” he wrote.

The sentiment among crypto users in this region is roughly the same.

Is the FCA protecting consumers or pushing offshore?

The UK’s regulatory stance now appears to be one of the extreme attention. Experts argue that excessive reliance on national regulations actively undermines competitiveness.

“We talk about the UK being a hub for digital assets, but in reality we feel the environment is hostile: slow approval, endless red tape, constant uncertainty average innovation is suppressed before it begins,” says Jordan Walker of Bitcoin Collective.

This pattern of regulatory behavior is not new. The enforced regulation playbook was also used by former US chairman Gary Gensler’s leader. Meanwhile, much of the crypto industry was attributed to the US failure that the strategy failed to maintain the crypto sector’s competitiveness.

A similar scenario is currently being carried out in the UK. Current hostility has led to a serious de-pasting issue in which traditional financial institutions complying with standards set by the Financial Conduct Authority (FCA) have abandoned their ties with crypto companies.

“The FCA approach is hurting them by blocking access and boosting offshore opportunities rather than protecting consumers,” Susie Violet Ward, CEO of Bitcoin Policy UK, told Beincrypto.

The UK regulator’s approach to classifying crypto assets has reinforced these challenges.

Asset classification issues

The FCA currently applies a “same risk, same regulatory” approach to all digital assets. This method cannot recognize the unique technical and economic characteristics of different cryptocurrencies.

Regulators have historically grouped all assets under the broad “high-risk speculative investment” label. This definition is somewhat faithful, but it cannot distinguish between distributed networks with fixed power sources and other categories such as memecoins and crypto tokens from Bitcoin.

“We’ve seen companies leave the UK due to stripping, limited retail access to Bitcoin products, lack of clarity from the FCA, which is struggling to operate here compared to other jurisdictions that allow businesses to move faster and give them room to innovate,” Walker noted.

By treating them the same, critics argue that this misclassification applies inappropriate regulations and creates disruption and unnecessary barriers to legitimate businesses.

Beyond these definitions, regulatory bans on the sale of certain crypto-related investment products have also slowed the pace of innovation.

Can the UK keep up with the US with retail crypto products?

In October 2020, the FCA enacted a policy prohibiting the sale, marketing and distribution of derivatives and exchange sales notes (ETNs). Regulators cited security risks, volatile prices and lack of legitimate investment needs.

The ban has been strong for almost five years. Recently, with a major policy reversal, the FCA announced that it will open retail access to crypto ETNs from October 2025. However, critics argue that this is a slow and inadequate step.

“It’s time. For two and a half years, we’ve been pushing to overturn an illogical ban on retail access to trade-trade Bitcoin products. This limit puts UK consumers at a disadvantage and keeps market growth under control.”

In contrast, the US is already moving forward. In early 2024, the Securities and Exchange Commission (SEC) approved the Spot Bitcoin Exchange-Traded Funds (ETFS). However, this action had its own challenges. The approval came only after a decade of rejection and after a federal court ruled in favor of their approval.

In addition to concerns about the UK’s careful regulatory approach, there is a friction point regarding how the country encrypts it.

Confusing tax and accounting systems

The UK’s approach to crypto accounting under the HMRC, the country’s tax authority, is a source of competition. The Incoming CryptoAsset Reporting Framework (CARF) represents important development. Starting in January 2026, HMRC will need detailed IDs and transaction reporting from crypto users and platforms.

Critics argue that, although designed to combat tax evasion, Carf only provides an incomplete picture of individual tax obligations, raising serious privacy concerns. The aggregated data may not provide the detailed context required for accurate tax calculations, leading to unnecessary investigations.

Existing tax rules imposed by the HMRC are also difficult to follow. Regulators consider Crypto as an asset subject to capital gains tax, so they need to closely track the original cost and value of all transactions, including Crypto-to-Crypto swaps.

In addition to the complexity, HMRC has certain regulations, such as bed and breakfast rules, which can quickly buy back it to prevent investors from losing it and selling cryptographic procedures, reducing tax bills.

This system is particularly burdensome for active traders, and in many cases specialist software must be used to manage tax reporting. To make this worse, the government reduced the tax-free allowance on capital gains and drew more and more small crypto users into the tax net.

In contrast, the US system offers clear benefits for long-term holdings. If an asset is held for more than a year, it is subject to a much lower profit tax rate. Both countries allow investors to use losses to offset their profits, but the US is more easily viewed.

How the UK will regain its footing

As other countries advance, the UK must support the digital finance sector and adapt its policies to maintain a foothold in the crypto race. The emphasis on the necessary guardrails is essential to maintaining consumer trust, but jurisdictions lack a clear, balanced framework to promote innovation.

“The UK has talent and potential, but it’s choking with overregulation,” Walker concluded.

The UK can always change its approach, but the speed of its action is important. How quickly a policy adapts will determine whether it will catch up or be forever left.

UK Wake-up Call: The reason behind the global Bitcoin race was first made in Beincrypto.