Cryptoassets – commonly known as ‘crypto’ – are a relatively new, diverse and constantly evolving class of assets that have a range of potential benefits. However, the crypto market is volatile and poses certain risks to investors.

Some recent failures, including cryptocurrency exchange FTX, have exposed the structural vulnerability of some business models in the sector.

The Government said its “robust approach to regulation” will mitigate the most significant risks, while harnessing the advantages of crypto technologies.

Andrew Griffith, economic secretary to the Treasury, said: “We remain steadfast in our commitment to grow the economy and enable technological change and innovation – and this includes cryptoasset technology.

“But we must also protect consumers who are embracing this new technology – ensuring robust, transparent, and fair standards.”

Government plans

Under plans published today, the Government said it will seek to regulate a broad suite of cryptoasset activities, consistent with its approach to traditional finance.

These proposals will place responsibility on crypto trading venues for defining the detailed content requirements for admission and disclosure documents – ensuring crypto exchanges have fair and robust standards.

The proposals will also strengthen the rules around financial intermediaries and custodians – which have responsibility for facilitating transactions and safely storing customer assets.

Nigel Green, CEO of deVere Group, said: “This news will further strengthen the case for cryptocurrencies and is likely to have a positive impact on prices of the major digital tokens.

“Regulatory scrutiny must be championed as digital currencies, including Bitcoin, are set to play an ever greater role in the domestic and international financial system, and they should be held to the same standards as the rest of the system.”

Crypto risk disclosures ‘often as clear as mud’

Myron Jobson, senior personal finance analyst at Interactive Investor, said: “Young, novice investors appear particularly exposed to the dangers of crypto trading. Our research found that 45% of young adults aged between 18 and 29 made crypto their first investment of choice during the height of the pandemic, with an alarming number funding this through a cocktail of credit cards, student loan, and other loans.

“It is important that steps are made to help safeguard investors, including improving risk disclosure provisions. At present, risk disclosures on cryptos are often as clear as mud – if they exist at all. What today’s proposals could mean for future long-term crypto investing is anyone’s guess. However, greater regulation could help sort the wheat from the chaff in the crypto arena and, in turn, lead to higher investor confidence in cryptocurrencies.

“Cryptos remain a high-risk investment because of how much and how quickly their value can change unexpectedly. But, whatever your approach to risk, cryptos should only be a small proportion of a well-diversified portfolio.”