The UK could announce regulations on the cryptocurrency market in the coming weeks, according to industry sources.

Cited by US news organisation CNBC, the anonymous sources said that UK Finance Minister Rishi Sunak is expected to make an announcement laying out the new regulatory regime.

While the details have not yet been revealed, the sources claim that the regulations will help provide legal clarity on the sector.

They noted that officials from the UK treasury have proven receptive to the complexities of the crypto market and the new regime will likely be favourable to the industry.

As part of the investigation, officials have been in discussion with groups and companies involved with the industry. One source specifically cited crypto exchange Gemini as being among the firms consulted.

The Treasury has not responded to the claims of the UK introducing cryptocurrency regulations.

Stablecoins

According to CNBC’s sources, among the subjects the Treasury is exploring are stablecoins. These attempt to bridge the gap between cryptocurrencies like Bitcoin and traditional fiat currencies.

These use digital tokens that can be traded with the same ease of use as other cryptocurrencies but are pegged to an underlying asset. These include fiat currencies, gold, or even other cryptocurrencies. This helps remove some of the price volatility frequently seen in other tokens.

While volatility makes the likes of Bitcoin popular as an investment, offering potential returns in a matter of days or even hours, it makes it unsuitable as an actual currency. By keeping price fluctuations in line with, say, those experienced by the US dollar or British pound, stablecoins can be used like a fiat currency.

However, due to the unregulated nature of the cryptocurrency market, there are concerns that stablecoins are not properly backed by the underlying assets.

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As cryptocurrencies have become more popular, it has come under increased scrutiny by financial authorities for several reasons.

One is the use of cryptocurrencies in money laundering operations. Since they can be used and sent anonymously, they have proven popular to store and send illicit profits.

Research discovered that around $8.6bn worth of cryptocurrency was used in laundering in 2021. Furthermore, tokens such as Bitcoin are frequently demanded by hackers as part of ransomware operations.

In addition, the environmental impact of blockchain technologies is bringing scrutiny on cryptocurrencies. Mining tokens is energy intensive, and many operations use cheap, coal-derived electricity.

As such, a recent report called for the sector to decarbonise by 2030.

This unease about the way cryptocurrencies are used drove the Financial Conduct Authority to ban major cryptocurrency exchange Binance from operating in the UK in summer last year.

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