Labour crypto sales could help fill a Budget spending hole

The new UK chancellor has been quick to lay the groundwork for potential tax rises in the Autumn Budget, outlining in her first speech that Labour has inherited “the worst set of circumstances since the second world war” and that she “will not hesitate” to take the “difficult decisions to deliver growth”.

A spending assessment is currently being undertaken by Treasury officials to determine the scale of the challenge ahead, but the chancellor may also be keeping one eye on the progress of court proceedings relating to a seizure of Bitcoin.

Earlier this year, the Crown Prosecution Service successfully obtained a property freezing order against an ex-takeaway worker called Jian Wen. This resulted in a sizeable amount of Bitcoin being held by the UK government and steps are now being taken to complete a ‘civil recovery process’. Such a process involves court proceedings which seek to establish that the seized Bitcoin was obtained unlawfully and should therefore be forfeited.

According to the crypto intelligence firm Arkham, the UK government currently holds 61,245 Bitcoin, seemingly largely as a result of the seizure from Jian Wen. Whilst Bitcoin prices have fluctuated significantly in recent weeks, based on a Bitcoin value of $64,000, the value of the UK government’s Bitcoin holding would be over £3bn.

One of the reasons suggested by some commentators for the fall in Bitcoin’s price in recent weeks has been the German government selling its entire holding of Bitcoin. Arkham’s research suggests nearly 50,000 Bitcoin have been sold by the German government since the middle of June 2024 and that some are reportedly donating Bitcoin to the German government’s digital wallet to replenish its funds, although only trivial amounts appear to have been donated so far.

Depending on the outcome of the civil recovery process, Rachel Reeves may find herself facing a similar quandary as Gordon Brown did with the UK’s gold reserves. If she chooses to sell, the UK government could find itself £3bn better off, potentially providing some needed spending headroom in government departments such as the Home Office. She could also potentially find herself later ruing the timing of that decision if Bitcoin rises to new record highs as some are predicting may happen. 

We are yet to really hear what the chancellor’s and the wider Labour party’s view is of cryptoassets generally. Their approach to the seized Bitcoin may provide a clue in due course. It was previously confirmed in November 2022 that the Treasury had never bought or held Bitcoin or any other digital assets up to that date. It would not therefore be a surprise for the Bitcoin held to be sold at the earliest opportunity to do so and for the crypto markets to be impacted as a result. 

The Chinese victims of the fraud which ultimately led to the Bitcoin seizure may also have something to say about a sale and there could be pressure from the Chinese government and legal wranglings as to whether the UK can appropriate these funds. Those hoping for a potential reprieve from future tax rises as a result of a crypto windfall may be disappointed by a protracted wait.