After a proposal by the Bank of England to cap stablecoin holdings for individuals at £10,000 or £20,000 received strong criticism, the Bank may be softening this stance.
A stablecoin is a cryptocurrency that maintains a stable value in relation to a specific asset, such as the US dollar. It’s believed by many that a restriction on stablecoin holdings would leave the UK falling behind the EU and US when it comes to regulating digital assets.
As the proposed maximum for businesses is £10 million, it may be a relief to those using stablecoins that the Bank of England seems to be backtracking on its stance against this form of cryptocurrency.
Here’s what businesses should know about stablecoin holdings under the current rules.
Why does the Bank of England want to cap stablecoins?
The majority of stablecoins are currently tied to US dollar-based products, with some worth up to $300 billion circulating. While they aren’t mainstream yet, they’re convenient for investors and those carrying out cross-border transactions.
Individuals can park funds using stablecoin while buying and selling more volatile assets or use stablecoins to pay for things while avoiding the extra costs associated with traditional methods, like credit cards.
The Bank of England is concerned about the future emergence of sterling-dominated stablecoins in retail and wholesale payment systems in the UK, so the Bank is aiming to set up a regulatory framework for a ‘real world’ multi-money system in advance, which should be finalised next year.
What about other cryptocurrencies like Bitcoin?
While stablecoins are becoming an alternative option, many businesses hold Bitcoin as an asset. This is because holding Bitcoin provides more diversification and can offer protection against inflation compared to treasury assets like cash and gilts, while also making the business seem more digitally savvy.
However, Bitcoin holdings still come with risks, including price volatility and custodial challenges. These involve including Bitcoin on balance sheets at cost, as it’s classified as an intangible fixed asset under UK Generally Accepted Accounting Practice.
It’s also worth noting that crypto assets are treated like shares when it comes to Capital Gains Tax liability.
Need accounting advice on crypto holdings?
While it hasn’t been updated for a couple of years, the Bank of England has published a stablecoin guide that explains what they are, how they work, and the Bank’s current stance on their use in the UK.
If you need professional financial guidance on crypto assets and transactions, whether as an individual or as a business, you may want to consult financial advisers like our accountants in Barnsley.
Here at gbac, our experienced team can help you with accounting and tax management for traditional and digital currencies. Simply call us on 01226 298 298 or email info@gbac.co.uk to find out more.