According to a CNBC report, the UK is set to release its plans for regulating the crypto market in the coming weeks, and government officials have been speaking with industry players and crypto exchanges in preparation.
According to industry sources familiar with the matter, the Treasury, the UK’s finance ministry, will focus on stablecoins in particular in its regulatory framework.
Treasury officials have demonstrated a willingness to understand the complexities of the crypto market and so-called stablecoins, digital assets whose value is derived from existing currencies such as the US dollar, one source told CNBC.
The UK’s finance minister, Chancellor Rishi Sunak, is expected to announce new crypto market rules soon, and they are expected to be favorable to the industry, according to the report. In response to an inquiry from Insider, the Treasury declined to comment.
Over the last 18 months, the cryptocurrency market has flourished. During this time, leading digital currencies bitcoin and Ethereum reached all-time highs, though they have since fallen back, and offshoots like NFTs and DeFi protocols grew in popularity.
Stablecoins, which are digital currencies pegged to assets like the US dollar, has also seen a significant increase in usage recently, as they represent a more stable investment than other more volatile cryptocurrencies.
As a result, governments and regulators have scrambled to comprehend and effectively monitor the industry. Some countries, like China, have decided to outright ban cryptocurrency activities, while others are attempting to understand and regulate the industry.
So far, the United Kingdom has fallen into the latter category, as it seeks to collaborate with the crypto industry to mitigate risks and create a safe environment for investors. One area of concern is the potential use of cryptocurrencies in money laundering and other criminal activity, while another is Russian use to circumvent sanctions imposed on Ukraine.
According to CNBC’s sources, the UK government has been in talks with several companies and trade associations in recent months. CNBC noted that this included exchanges like Gemini, run by the Winklevoss twins, which has its stablecoin, the Gemini dollar – Gemini declined to comment when contacted by Insider.
Regulators are concerned about stablecoins, specifically the misrepresentation of the assets in the reserves that back these coins. This could cause issues if investors sold their holdings in large numbers, so they have become a focus of regulatory discussion.
Stablecoins can be pegged to anything from gold to oil to protect them from the price swings that other cryptocurrencies experience. However, stablecoins pegged to government-issued currencies are the most popular – according to CoinMarketCap data, the dollar-pegged tether is the world’s third-largest cryptocurrency by market value.
The issuer of a stablecoin maintains reserves of the underlying asset to ensure the coin’s value remains stable. So, for every tether coin issued, there is $1 in reserves, and holders can always exchange their tether coin for $1.
Banks and other financial institutions are increasingly interested in entering the cryptocurrency markets, and clear regulation is seen as necessary before they can invest more deeply.
The Bank of England acknowledged this interest on Thursday when it unveiled plans for the UK’s first regulatory framework for crypto assets. It has given banks until June 3 to lay out their crypto plans and stated that UK regulators will most likely require new powers.
According to BoE deputy governor Sam Woods, international discussions on the treatment of stablecoins are ongoing, and his office will continue to consult firms and trade groups throughout the process.
