The Bank of England (BoE) has made a significant decision to exempt crypto exchanges and other operationally critical firms from proposed stablecoin holding limits, which could potentially boost investment in Bitcoin (BTC) and Ethereum (ETH).
According to a report by Bloomberg News on October 7, the central bank is planning to grant waivers to firms that require large token inventories for market-making and settlement operations. This move comes in response to backlash over draft rules that were reported in September, which would have capped individual stablecoin holdings and limited firms to a specific amount.
The exemptions will allow UK-based exchanges and market makers to maintain centralized inventories for operational purposes, provided they do not exceed the proposed caps. This is crucial for platforms that process large volumes of transactions daily, as they require significant operational float to facilitate instant execution and settlement.
The exemptions aim to keep stablecoin flows visible and regulated within the UK jurisdiction, rather than pushing them offshore. This will enable exchanges to maintain unified stablecoin inventories under UK jurisdiction, driving liquidity to Bitcoin and Ethereum trading.
In addition, the Financial Conduct Authority (FCA) is developing parallel rules for stablecoin issuers and custodians, ensuring that all entities involved in the process are subject to appropriate regulations. The UK government has also stated that overseas stablecoin issuers do not need UK authorization to have their tokens traded on UK platforms, creating an incentive for dollar-denominated stablecoin activity to concentrate in UK venues.
The recent decision by the FCA to lift the retail ban on crypto exchange-traded notes (ETN) further enhances the investment landscape for retail investors in the UK. This change allows crypto ETNs listed on the London Stock Exchange to be sold to individual investors, opening up new distribution channels for retail investment products.
Overall, these regulatory changes reduce friction for on-shore crypto activity and create a favorable environment for Bitcoin and Ethereum trading in the UK. The exemptions provided by the BoE, coupled with the expansion of retail investment products like crypto ETNs, are set to drive liquidity and investment into the crypto market in the UK.