Major Favourable Information: The Bank of England exempts the stablecoin holding limit, the FCA lifts the ETN ban, and the liquidity of BTC and ETH is expected to soar!

The Bank of England (BoE) plans to exempt cryptocurrency exchanges and other critical operating businesses from compliance with the proposed stablecoin holding limits. This move aims to prevent billions of dollars in stablecoin liquidity from flowing overseas and to keep it within the UK's regulatory framework. Previously, draft rules had limited individual stablecoin holdings to £10,000 to £20,000, and set a £10 million cap for businesses, which faced strong opposition from exchanges and market makers. At the same time, the UK's Financial Conduct Authority (FCA) lifted the ban on cryptocurrency exchange-traded notes (ETNs) for retail investors on October 8. These two regulatory actions significantly reduced friction in onshore crypto activities and are expected to inject strong momentum into the trading liquidity of Bitcoin (BTC) and Ethereum (ETH).

Bank of England Eases Stablecoin Cap: Billions in Funds Stay in the UK

The latest decision of the Bank of England is a positive response to the voices of the crypto industry, ensuring the normal operational capabilities of domestic exchanges and market makers in the UK.

· Exemption Core: The Bank of England plans to grant exemptions to companies that need to hold a large inventory of tokens for market making and settlement activities, allowing them to operate without the previously proposed £10 million holding limit.

· Industry Opposition: Exchanges and market makers previously pointed out that operational requirements typically necessitate billions of dollars in stablecoin balances to facilitate customer trading, fiat conversions, and inter-exchange arbitrage. The original rules would force them to disperse customer assets or move custody and trading operations overseas.

· Strategic Goal: The exemption aims to keep the liquidity of stablecoins within the jurisdiction of the UK, enabling visible and regulated operations rather than pushing it offshore. This allows UK exchanges to maintain a unified inventory of stablecoins, thereby providing instant execution and settlement.

· Regulatory Coordination: The exemption from the Bank of England aligns with the parallel rules being developed by the FCA for stablecoin issuers and custodians, ensuring the coherence of the regulatory framework between exchanges/market makers (focused on trading and settlement) and issuers/custodians (focused on support and redemption).

Regulatory Advantages in the UK: Distinct from the EU MiCA Framework

The UK's lenient attitude towards overseas stablecoin issuers gives it a unique advantage in the competition for stablecoin activity.

· Overseas issuers: The UK government has made it clear that overseas stablecoin issuers do not need to obtain UK authorization to trade their tokens on UK platforms.

· In contrast to MiCA: This stands in stark contrast to the EU's MiCA framework. MiCA requires issuers to obtain authorization and imposes trading volume thresholds on non-euro stablecoins (to prevent currency substitution).

· Concentration effect: The UK platform faces no similar constraints, which incentivizes dollar-denominated stablecoin activities to concentrate in the UK rather than EU exchanges.

ETN Ban Lifted: Introducing Retail Funds for BTC and ETH

The Bank of England's stablecoin exemption coincides with the FCA lifting the ban on crypto ETNs for retail investors, which will greatly expand the distribution channels for BTC and ETH.

· Ban Lifted: The FCA lifted the ban on Crypto Assets ETNs for retail investors on October 8.

· Retail Channels: Once the platform implements compliant infrastructure before October 16, the crypto ETN listed on the London Stock Exchange can be sold to retail investors. Retail investors can access the ETN through online brokers and tax-advantaged accounts.

· ETN mechanism: Crypto ETNs are debt securities that track the prices of crypto assets without holding the underlying assets, allowing them to circumvent the restrictions on spot crypto ETFs imposed by UCITS (Undertakings for Collective Investment in Transferable Securities).

· Liquidity support: Although the stablecoin exemption focuses on trading infrastructure, the ETN changes have expanded the range of retail investor products. Both have reduced regulatory friction in onshore crypto activities, creating a pathway for promoting Bitcoin and Ethereum trading in the UK. A larger stablecoin balance will allow market makers to invest more capital, resulting in tighter bid-ask spreads and deeper order books.

Conclusion

The UK's regulatory strategy is sending a clear signal: embrace and regulate the operations of crypto assets. The Bank of England's stablecoin exemption has successfully retained billions of dollars in trading liquidity, preventing capital outflows. At the same time, the FCA lifted the retail ban on ETNs, opening the door to safe and compliant crypto investments for individual investors. These two significant actions effectively reduced the regulatory costs and entry barriers for crypto trading and investment in the UK, providing a strong foundation for the market depth and trading volume of BTC and ETH, and consolidating the UK's competitive position as a global crypto financial center.

How do you think these regulatory changes will affect the actual capital allocation of institutions in the UK for BTC and ETH?