How Brexit Is Affecting The Bitcoin And Blockchain Industries

The Juxtaposition Of The U.K And E.U. Flags

Walking down the streets of Madrid on June 24th, 2016 during a business trip, I began to hear murmurs around every corner.  I don’t speak Spanish very well, but there was one word I could make out, “Brexit”.  This topic seemed to have been on everyone’s mind for the prior few weeks as I traveled around Europe, visiting Amsterdam, Paris and Madrid. However, on that day, the shock and awe in the voices of nearly everyone in Europe was palpable, even to foreigners who didn’t speak the language. The Brexit was, despite the campaign that led to it, entirely unexpected, and there are a lot of puzzling implications for the Bitcoin and blockchain industries.

London is to the European Union as Manhattan is to the United States. Global finance depends on “The City” in the same way it depends on Wall Street. During my travels, when meeting enterprises the question that would often come up was, “Who are your banking partners and where are they regulated?”  London’s dominance of financial services, representing 9.6% of the United Kingdom’s GDP and with London rivaling NYC as the largest financial center in the world, has been maintained and fostered by the work of the Financial Conduct Authority or FCA, the UK’s banking regulator.  This has placed the FCA as, if not the most, one of the most well respected financial regulators within Europe.

Even though blockchains present themselves as inherently trustless systems, trust is still required when working with companies building private blockchain technology or applications on top of public blockchains. Having relationships with banks regulated by the UK has a distinct advantage from a trust and pedigree standpoint, especially when talking with enterprises. This is especially true when working with the bitcoin blockchain, because of all the FUD  and bad press around the technology. Obtaining the blessings of the U.K.’s regulatory agency would almost immediately dispel those concerns.

That has all changed. One big advantage of being part of the E.U. is the ability to passport a financial license.  When you get a license for financial services in one country, you are able to passport this license to other countries, meaning you do not have to spend money on applications and bonds for each country, learning the languages of all the different member states and then waiting to go through the slow bureaucratic application process for each country. This is a stark difference to the U.S. model, which requires licenses for each of the states, except Montana.  

Now that the U.K. is seeking to leave the E.U., it is uncertain they will keep the passportability of their licenses.  This is incredibly important for startups in the Bitcoin and blockchain industries when choosing a headquarters within Europe.

I recently sat down with Marieke Flament, the European managing director for Circle, a Bitcoin blockchain company which has raised over $130m in funds, recently obtained an e-money license in the UK, and established a partnership with Barclays.


The U.K.’s working class triggered the Brexit, but it is London where the changes are going to be felt first and hardest. Talented foreigners have long flocked to The City, but now the future is much less certain.  With the tightening of borders, the main driving force behind the decision of Brexit, companies within the U.K. may be forced to outsource to the rest of Europe. While the U.K. is part of the Single Euro Payments Area, which is not directly affected by the Brexit, once the change gets rolling it’s safe to assume other things, like SEPA membership status, although unlikely, might change. This uncertainty means hiring, and paying, in an already competitive market will get more difficult. I asked what Circle will have to do differently, and Flament replied,

Nothing is going to be changed between the UK and the EU for two years.  The only thing that Circle is planning to do differently is to expand much more rapidly during the next two years throughout Europe.  From what I have read and heard from politicians and regulators, it seems that once a licensed entity out of the UK has begun working in other countries, those operations will not go away even if the passportabilty is stripped.  However, it is likely that you will no longer be able to use the license to passport into any new countries after these two years.

While it makes sense for Circle to aggressively expand into other countries, smaller Bitcoin and blockchain startups looking to get licensed in Europe would greatly diminish their risks by looking elsewhere.  The process is very expensive and could easily take up to a year, leaving only a single year for a startup that is likely not as well capitalized as Circle to expand into other markets.  This is obviously not acceptable to startups.

There is some talk that Frankfurt is the natural successor for established financial companies, with Berlin taking up the duties for startups which London will no longer perform, but this is not necessarily the case for public blockchain startups. While Germany has not shown itself to be a place that is very welcoming to public blockchain companies, Luxembourg is positioning itself to be the European capital within the bitcoin industry, having already given out two financial licenses to Bitcoin companies.

Luxembourg is centrally located within Europe, acts as the main European regulator for institutions such as Paypal, Amazon Payment Services and Rakuten, and it is very easy to deal with their regulatory agency. I was able to speak with Nadia Manzari, the head of the CSSF, Luxembourg’s financial regulator, during my travels.  They are very open to financial innovation and easy to talk to.  As a result, I’m starting to see a trend towards Luxembourg as I have conversations with fellow executives in the industry.

While the Brexit may be causing many Bitcoin companies to rethink their European strategies, there is also an upside for the industry.  Bitcoin first became a refuge asset during the Cyprus banking crisis in 2013. Today concerns over the Brexit are again driving interest in Bitcoin, which recently crossed the ten billion dollar market capitalization threshold, and which saw a similar increase in daily liquidity. Gold has long been the top refuge in uncertain times, now Bitcoin is filling some of that need. It’s more volatile, but it moves as quickly as a wire transfer, and as a de facto intermediary free system, governments can only regulate companies which hold custody of user funds. Funds that are directly by the user through open source technology are free to move as the owner directs.

When it comes to the erection of payment barriers, such as those which would come about with how the Brexit may affect their status within SEPA, blockchain will play an important role. Lofting legitimate wages across international banking obstacles is why Bitwage was created, so the U.K. rebuilding a barrier between themselves and Europe is more of an opportunity than a problem for us. While normal banking systems could suffer from such a change, public blockchains would enable nearly instant and free settlement between the U.K.’s Faster Payments system and the E.U.’s SEPA.  We’ll make sure payroll funds continue moving quickly and reliably, no matter what turbulence comes as the U.K. and E.U. disentangle themselves.
