Learning about Trump? The UK is trying to establish a Bitcoin reserve worth £5 billion.

At a meeting held in London this week, UK Reform Party leader Nigel Farage positioned himself as a "supporter" of the digital asset sector and proposed a series of policy initiatives.

Specifically includes: a unified capital gains tax of 10% on cryptocurrencies; establishing a national Bitcoin reserve of approximately £5 billion using confiscated cryptocurrencies; halting the Bank of England's digital pound project; allowing tax payments in cryptocurrency (not mandatory).

This policy proposal has similarities with the three policies put forward by Donald Trump during his cryptocurrency campaign.

For example, opposing central bank digital currencies, publicly establishing partnerships with cryptocurrency mining companies and the industry, and the White House signaling in its digital asset strategy that leading in the fintech sector is a federal priority.

However, the policy transmission path in the United States is very clear — policy statements are repeatedly reflected in the capital flows of spot Bitcoin ETFs, and these capital flows have largely driven market demand.

The pace of policy advancement in the UK is completely different. The latest progress report released by the Bank of England shows that the Bank of England and the UK Treasury are still in the design and exploration stage of a potential digital pound and have not yet decided whether to move forward with the project.

According to the Consultation Paper No. 25/14 (CP25/14) published by the UK Financial Conduct Authority (FCA), the short-term focus of the market is on the definition of regulated stablecoins and the custody rules that are currently in the consultation phase.

At the same time, the UK is preparing to allow the issuance of tokenized investment funds, a move that will provide banks and asset management companies with a convenient market access channel, and the establishment of this channel is unrelated to campaign policy proposals.

Factors such as power distribution, policy processes, and time nodes determine that the reform party's policy propositions are difficult to translate into actual policies.

After the 2024 UK general election, the Reform Party holds only 5 seats in the 650-seat UK Parliament, while the Labour Party achieves governance with an absolute majority of seats.

In the UK, tax rate adjustments must be approved through the Finance Bill. The government is responsible for formulating the reserve framework, while the Bank of England acts as the executing agency to assist in implementation. Both primary legislation and secondary legislative documents must be reviewed and approved by the House of Commons and the House of Lords.

According to the Dissolution and Calling of Parliament Act, the next UK general election will not be held until at least August 2029.

In this parliament, small parties are unable to dominate the policies of the Bank of England or the Treasury, and very few backbenchers' bills can formally take effect as law. Even if some of Farage's policy proposals gain support, they would need to be taken up and promoted by the currently governing government to have any chance of being implemented.

If any of the policy proposals are incorporated into mainstream policy, the data behind the relevant core proposals will determine the potential impact.

Bitcoin-related data in the UK

Based on the exchange rate of 1.328 for GBP to USD, the Bitcoin allocation amount of 5 billion GBP is approximately 6.64 billion USD.

At a price of $112,000 per Bitcoin, this means the UK needs to purchase or hold about 59,000 to 60,000 Bitcoins, accounting for approximately 0.30% of the current circulating supply of Bitcoin.

In fact, the UK has held a certain amount of seized Bitcoin. Reports from law enforcement indicate that 61,000 Bitcoins related to a hacking incident in 2016 have been confiscated.

Theoretically, with this reserve, the plan of "establishing reserves through retained confiscated assets" is feasible.

However, according to the UK Proceeds of Crime Act, seized assets are usually prioritized for liquidation and used for compensation, which means that if the government wants to hold seized assets as reserves, it must obtain clear legal authorization.

In terms of taxation, cryptocurrencies are currently included in the scope of capital gains tax administration. The unified tax rate of 10% may reduce the actual tax burden for high-tax-rate taxpayers and could change the way cryptocurrencies are accessed in the UK market, loss harvesting strategies, and holding periods. However, this tax rate adjustment still needs to be submitted to the government as part of the "Finance Bill" and approved before it can be implemented.

For market participants who focus on the policy transmission path rather than campaign rhetoric, the underlying mechanisms affecting the flow of funds are already in progress.

The improvement of stablecoin issuance and custody rules, coupled with the clear development path of tokenized funds, will jointly build an institutional-level market infrastructure.

This infrastructure not only expands the liquidity of the British pound in the cryptocurrency space but also reduces the operational friction costs of market-neutral strategies and basis strategies.

Although there are differences between the policy paths of the UK and the ETF model of the US, the market impacts generated by both may gradually accumulate as the regulated infrastructure continues to improve.

For this reason, these policy proposals only have practical significance when they are adopted by the ruling party or intersect with the processes already being advanced by the UK's Financial Conduct Authority and the Bank of England.

Comparison of ### with Bitcoin policies in the United States

By comparing transatlantic policies, we can better understand Farage's choice of words.

Trump has expressed opposition to the Federal Reserve launching a digital currency, openly seeking support from mining companies, and signaling at the federal level to emphasize the leading position in the digital asset field. These measures provide a clear development direction for the cryptocurrency industry.

Subsequently, the transmission of the policy is reflected through the subscription and redemption of the spot Bitcoin ETF, and the relevant data will be reflected in the weekly fund flow report.

Currently, the UK has not developed a domestic spot Bitcoin ETF channel that can compete with the scale of the United States. This means that the key factors influencing the activity of the UK cryptocurrency market in the short term are more related to regulated custody services, the connectivity between banks and the cryptocurrency market, and tokenized fund vehicles, rather than sovereign-level demand.

If the UK allocates sovereign Bitcoin at the scale proposed by Farage, this action will clearly manifest in the global ledger of Bitcoin holdings associated with countries.

On-chain analyst data shows that the U.S. government controls a large amount of confiscated Bitcoin; El Salvador also holds thousands of Bitcoins on its balance sheet. The 61,245 Bitcoins currently held by the UK places it among the top holders of Bitcoin in the world (based on the statistically calculable scale).

Despite the clarity of this signal, the impact at the monetary policy level is still constrained by the overall scale of the UK's foreign exchange reserves and the inflation target of the Bank of England. Therefore, we need to pay close attention to the relevant legal basis, implementation process, and institutional objectives.

If the Reform Party is to win an absolute majority of seats and govern in the next UK election, it will become an unprecedented electoral reversal in the modern political history of the UK.

The party only won 5 seats in the 2024 election, and to increase from 5 seats to an absolute majority in Parliament (which requires at least 326 out of 650 seats), its seat increase will surpass any single party's seat growth record achieved in a single election in British history.

Notable previous cases of seat growth in British history include:

• The number of seats for the Labor Party surged in 2024: an increase of 211 seats compared to 2019.
• The largest change in seat allocation in the history of the UK elections occurred in 2024, with 303 seats changing hands; the previous highest records were 289 seats in 1931 and 279 seats in 1945.

Market Background and Policy Feasibility

If a certain policy leads to approximately 60,000 bitcoins exiting circulation, or if an equivalent amount of bitcoins is continuously purchased over a period of time, it will marginally change the overall trend of market capital flow.

The execution path of the policy is crucial, and the legal basis for deciding to retain seized assets rather than auctioning them is equally important.

These decisions should be made by the government and the Bank of England within the existing framework, rather than being decided by small opposition parties.

The following is a brief overview for readers interested in data related to Farage's policy positions:

Looking to the future, the direction of policy can be judged by the following three key signals:

First, the Bank of England stated that the timeline for the digital pound and the modernization of the payment system between the Bank of England and the Treasury will determine whether the scope of the related design work will be adjusted and whether the pace will change.

Secondly, the progress of the UK's Financial Conduct Authority in formulating regulations for stablecoins and custody will determine the pace of infrastructure development for the pound in the cryptocurrency space.

According to the plans of the UK's Financial Conduct Authority, the implementation of the final rules and subsequent regulatory enforcement will bring cryptocurrency-related activities into a more standardized regulatory framework.

Third, if the major political parties decide to adopt some of the policy proposals put forward by Farage, the related developments will first be reflected in the party manifesto and the draft text of the Finance Bill, and only then may they be reflected in the sovereign reserve data.

Currently, the Labour Party holds the majority of seats in Parliament, the legislative process is proceeding as usual, and existing regulatory work continues to be carried out.

These factors collectively determine that the UK's cryptocurrency policy will continue to advance along the direction set by the Financial Conduct Authority and the Bank of England, rather than the policy path proposed by the Reform Party.