In addition, the UK has lifted the retail ban on crypto exchange-traded notes (ETNs), enabling retail investors to access crypto exposure through these debt securities on the London Stock Exchange.

Market metrics to watch include the growth of sterling-backed stablecoins, institutional investment levels, and the impact of evolving regulations on the market.

The revised regulatory framework will distinguish between stablecoins used for consumer payments and those for institutional settlement, with public consultation expected later in 2025 and phased implementation in 2026.

Overall market sentiment remains cautiously optimistic, with no major volatility in stablecoins and a broader confidence in the UK’s crypto ecosystem.

Upcoming detailed regulations from the BoE and FCA in 2026 will be pivotal in shaping compliance and market opportunities.

The UK’s move aligns with international standards like the EU’s MiCA and US’s GENIUS Act, aiming to reduce regulatory disadvantages and promote GBP-backed stablecoins.

Long-term, the UK aims to integrate stablecoins into traditional finance, diversifying the monetary system and providing safer digital payment options.

Regulatory changes are expected to improve liquidity in Bitcoin and Ethereum markets by enabling exchanges to use stablecoin inventories for tighter spreads and deeper order books.

Exemptions are crucial for mid-sized exchanges processing hundreds of millions daily, preventing the need to split assets or move operations abroad, which would reduce liquidity.

The market responded positively to the UK’s regulatory developments, with stablecoins like USDT and USDC maintaining stability and boosting investor confidence.

The Bank of England is set to introduce exemptions to its proposed stablecoin holding limits for certain firms, such as crypto exchanges, allowing them to hold larger reserves and operate more effectively.

This regulatory move aims to position the UK as a global leader in stablecoin innovation, attracting investment, talent, and fostering financial inclusion.

Despite strict regulations, stablecoins have gained prominence, with increased involvement from traditional financial institutions and the development of formal regulatory regimes in the US and Hong Kong.

Bank of England Governor Andrew Bailey emphasized that stablecoins are vital for financial innovation and should not be broadly restricted, viewing them as transformative tools for global payments.

Initial proposals from the US Federal Reserve aimed to impose strict stablecoin limits to prevent bank deposit outflows, highlighting global regulatory concerns about stability.

Industry experts, including leaders from DeFi platforms like Aave, have welcomed the UK’s pragmatic approach, emphasizing the importance of balancing risk management with innovation.