HM treasury has reaffirmed its intentions to support and regulate cryptocurrencies despite the cryptocurrency market continuing to spiral downwards.
The sharp decline in crypto currency can be directly linked to the demise of the stablecoin Terra, or UST, which occurred in May of this year. UST was created to be pegged against the US dollar through the use of its sistercoin, LUNA. The UST algorithm was supposed to maintain the dollar peg through a system of minting and burning tokens; with each UST minted resulting in the equivalent of one dollar of LUNA being destroyed. However, extreme market volatility led to UST being unable to maintain the peg. As a result, the value of UST fell significantly below the desired one-dollar value, whilst LUNA’s value crashed all the way to zero dollars, leading to an estimated sixty billion being lost. This, alongside other market factors, has led to the so called “Crypto Crash”, with the price of leading cryptocurrencies such as Bitcoin continuing to plummet.
However, despite the uncertainty surrounding the crypto market, HM Treasury seem certain to legalise cryptocurrencies, and in particular stablecoins, as a means of payment in the UK. Following a consultation on the UK’s regulatory approach to crypto assets and stablecoins, the government has confirmed its intention to legislate to bring certain stablecoins into the regulatory perimeter. The follows on from the UK governments ambitions for Great Britain to be at the forefront of crypto technology and innovation.
Specifically, the HM Treasury have outlined their intentions to create a bespoke regime which will regulate the issuance of certain stablecoins, including the provision of wallets and custody services. Separately, stablecoin based payments are set to be included under the Financial Services (Banking Reform) Act 2013 and Part 5 of the Banking Act 2009 is to be extended to include stablecoin activities, allowing for greater competition and for the Bank of England to oversee systems used for the transfer of stablecoins.
HM Treasury has also summarised its plans to remove the current disincentives for investing in crypto assets which exist for investment and fund managers. Additionally, they have stated that a Crypto asset Engagement Group will be set up to act as an intermediary in a direct and open way with regulators and Treasury.
The UK therefore appear to be vying to become one of the first jurisdictions to provide regulatory certainty for the crypto market as they look to establish themselves as a global hub for crypto asset technology.
