The UK government could announce long-awaited plans to regulate the cryptocurrency market within the coming weeks, industry sources told CNBC.
It is thought Chancellor Rishi Sunak will announce a new regulatory regime for crypto focusing on stablecoins, the less volatile type of cryptocurrency backed by more traditional asset classes such as gold or cash.
The regulation is still being finalised, but sources told the news outlet they are likely to be favourable to the crypto industry providing much-needed legal clarity.
The UK is currently an outlier in Europe in the digital asset space as far as it does not have any regulatory framework for cryptocurrencies. In October 2020, the Financial Conduct Authority (FCA) banned the sale of crypto derivatives and exchange-traded notes (ETNs) to retail investors.
Last week, the EU Market’s in crypto regulation (MiCA) moved forward to the next phase of discussions without restricting crypto assets such as bitcoin that are based on proof-of-work.
The Treasury has been open to understanding the complex market and has consulted with leading industry firms, including the crypto exchange Gemini which has its own stablecoin, the Gemini dollar, backed by the US dollar.
Stablecoins have grown hugely over the past few years, the largest is tether which has seen its assets rise from $4bn two years ago to more than $80bn.
Their rise has given a cause for concern for regulators who have been worried they may not be backed by an equivalent number of reserves, while also being used for illicit activities.
It follows calls from the Bank of England last week for policymakers to limit the risk posed by crypto by expanding regulatory frameworks.
Earlier this month, US President Joe Biden ordered the most wide-reaching effort yet by the federal government to study and potentially regulate cryptocurrencies, a move that could bring regulators closer to approving spot cryptocurrency ETFs on the US markets.