Blockchain Bonds: A fix for Britain’s bond crisis?

I was on holiday in Greece a little while back for a relaxing getaway with my family.

I had made a deposit while I was away to a crypto exchange (as you do when you’re chilling by the pool).

The next day, I went to transfer some funds to another account, and I couldn’t. My account had been frozen due to “suspected fraudulent activity.”

This, of course, is not an uncommon story in the UK. I’m sure you’ve had a similar experience.

In fact, if you have, I’d love to hear about it. Let me know – feedback@southbankresearch.com. We can all share our war stories with the banks.

And let me know if you’re OK for me to republish your story. I’ll share some responses here again soon if I get enough.

Anyway, from what I hear, things haven’t really gotten any better with the banks over the years. Some are good, some are bad, and some are downright authoritarian.

I was lucky in that I just gave them a quick call and it was sorted. I’d made that transaction before, so they could see it wasn’t irregular or abnormal.

It was still very annoying, though.

So, it’s clear the banking system hasn’t really changed when it comes to crypto…

But maybe when it comes to saving Britain’s bond market, things might finally be set to turn for the better?

Digital assets hot air week?

This week, at the Tower Hotel, next to Tower Bridge, City minister Lucy Rigby stood up at Digital Assets Week to talk about government bonds.

Not your regular every day run of the mill bonds, no. She laid out the six banks that will sell Britain’s first “digitally native” government bond.

NatWest, Barclays, HSBC, Lloyds, Morgan Stanley, and RBC Capital Markets will underwrite the Digital Gilt Instrument (DIGIT) and sell it on the day, which the Treasury expects by the end of March.

The funny part of it all is the likes of this lot will happily freeze your accounts and cap what you can send to a crypto exchange but they’re all chomping at the bit for “digitally native” DIGIT bonds.

Kind of feel like giving them all the middle DIGIT….

(Ahem.)

So, is Westminster finally warming to crypto, or is it still scared of it?

It’s both, and this bond tells you they want a little bit of this, none of that, and more of the thing they’ve always done.

Key point here: Don’t believe it when they say they’re being proactive when it comes to digital assets.

DIGIT is a short-dated gilt that will be issued and settled on a shared ledger. Not a public ledger.

It runs on HSBC’s Orion platform inside the Digital Securities Sandbox, a fenced-off testing ground run by the Bank of England and the FCA.

So it’s crypto-based technology under the strict controls of the TradFi establishment.

But the rhetoric will be that they’re very digital asset friendly.

As expected, Rigby said in her speech that the plan is for it to be the first digital asset listed on the London Stock Exchange’s main market. The Treasury backed her up too:

Digitalisation is central to ensuring that the UK can be a global hub for digital assets and the government’s commitment to the issuance of a digital gilt is a core part of this agenda. The appointment of Lead Managers marks an important step as we work towards issuance early next year.

So is Britain still cryptophobic?

In short, yes, in my view.

DIGIT has nothing to do with Bitcoin or real open source distributed ledger technology (DLT).

Orion is a private ledger run by HSBC, and only vetted firms get on it. It’s as typically TradFi as you’ll get.

If the government were serious about a flourishing industry, there would be incentives for crypto start-ups from the FCA, there would be new legislation in place to foster innovation, and there would be open-source collaboration between the DeFi side of things and the TradFi side of things.

None of that is happening.

The current system in the UK is simply not even close to a real pro-crypto agenda. If it were, then at the very least, it would be a far simpler process even just to move funds from a bank to an exchange or a wallet.

That’s really what you want to look out for.

None of this “global hub for digital assets” nonsense.

When any one of those six banks lifts its crypto cap or integrates a crypto-native wallet into its banking systems, only then could we argue the cryptophobia is on the way out.

Until that time, the UK remains years behind the competition.

Until next time,

Sam Volkering
Investment Director, Southbank Investment Research

PS DIGIT might change how Britain sells its debt, but it won’t fix why Britain has so much of it. For that, we need real economic growth, cheaper energy, and less dependence on the rest of the world. And I think Britain could be sitting on an energy resource potentially worth £55 trillion that could help deliver exactly that. Better still, there’s one British stock that could put investors right at the heart of it. Click here for the full story.