BoE Plans Stricter Stablecoin Regulation with Holding Caps
The Bank of England has proposed stricter stablecoin regulation to shore up financial stability after the 2023 SVB collapse triggered USDC’s depeg.
Under the draft stablecoin regulation framework, individuals face a holding cap of £10,000 (down from an initial £20,000 proposal) and businesses a £10 million cap. Issuers must deposit 40% of token reserves at the BoE without earning interest.
The BoE will oversee payment-focused stablecoins, while the FCA covers trading tokens. The UK is coordinating with US regulators to finalize rules next year. The global stablecoin market stands at $312 billion. Meanwhile, Coinbase’s planned $2 billion partnership with BVNK has been shelved, potentially slowing local stablecoin adoption.
Traders should monitor how these reserve and cap requirements affect stablecoin liquidity, issuer funding, and market flows.
Bearish
The proposed stablecoin regulation introduces individual and business holding caps and hefty reserve requirements. In the short term, this may constrict stablecoin liquidity, reduce large capital inflows, and prompt issuers to seek higher-cost funding, likely weighing on stablecoin market stability and trading volumes. Over the long term, clear regulatory frameworks could bolster confidence and reduce systemic risk. However, the near-term constraints on issuance and liquidity point to a bearish outlook for stablecoin trading activity.