As global cryptocurrency adoption rises, governments are wrestling with the potential effects on their financial systems and overall economic stability. This week has seen several significant policy shifts affecting the crypto sector—some stifling innovation, while others promote it.
In the US, a government shutdown has put a stop to any discussions regarding crypto-focused exchange-traded funds (ETFs). Federal agencies are functioning with limited personnel until Congress comes to a budget resolution.
Meanwhile, in the UK, the government has removed a ban on crypto-based exchange-traded notes (ETNs)—debt instruments allowing investors to gain crypto exposure without direct ownership. UK regulators assert that the market has matured sufficiently to support these products.
In different regions, nations are formulating legal structures and definitions for cryptocurrencies, with sovereign wealth funds beginning to invest in digital assets.
Here are six policy updates influencing crypto this week:
US government shutdown halts ETF progress
The US Congress, split between Democrats and Republicans, failed to agree on a budget. Although Republicans control the Senate, they lack the 60 votes essential for passing the spending bill, resulting in a federal government shutdown on Oct. 1.
This has led to many federal agencies shutting down or operating on skeleton crews, including the Securities and Exchange Commission (SEC), which oversees financial instruments and much of the crypto space.
No actions have been taken on pending ETF approvals during the shutdown. For instance, the SEC did not comment on Canary Capital’s spot Litecoin ETF by the Oct. 3 filing deadline.
However, not everything has halted in Washington. The US Senate confirmed Jonathan McKernan as under secretary for domestic finance at the Department of the Treasury on Oct. 7.
There is optimism within the crypto sector regarding McKernan’s appointment, as he has opposed certain government debanking policies, although he hasn’t directly linked them to cryptocurrency.
UK lifts ban on crypto exchange-traded notes
The Financial Conduct Authority (FCA), the UK’s main financial regulator, has relaxed some restrictions on crypto-related investments.
On the previous day, the FCA revealed that retail investors can now access crypto-related ETNs, stating that the market has evolved, and “products have become more mainstream and better understood.”
The UK has generally adopted a cautious stance towards cryptocurrency and retail investors. In 2021, the regulators banned crypto ETNs, citing their unsuitability for retail investors and a perceived lack of genuine investment necessity. The FCA pointed out in its recent announcement that crypto derivatives remain off-limits.
Related: ETN vs. ETF: Which Is the Investor’s Dream?
Luxembourg sovereign wealth fund invests in crypto ETFs
The Sovereign Wealth Fund of Luxembourg is now investing in crypto ETFs.
In an announcement on Wednesday, the Treasury Director and Secretary General Bob Kieffer mentioned that the fund has allocated 1% of its portfolio to Bitcoin ETFs. The fund had approximately 764 million euros ($888 million) in assets under management as of June 30, indicating a roughly $9 million investment in Bitcoin ETFs.
The fund is authorized to allocate up to 15% of its wealth in alternative asset classes, including private equity, real estate, and crypto.
Kieffer stated that the 1% allocation was suitable for the fund, while clearly signaling Bitcoin’s long-term potential.
Crypto bill passes in Kenya
Kenya is set to establish a regulatory framework for virtual asset service providers (VASPs).
On Tuesday, the Kenyan parliament passed the Virtual Assets Service Provider’s Bill, awaiting President William Ruto’s signature. The legislation will lay out licensing and consumer protection standards and provide a legal framework for exchanges, brokers, wallet operators, and token issuers.
Earlier this year, local attorneys raised concerns that the bill lacked clarity regarding which regulators would oversee various aspects. They also questioned the practicality of some requirements for miners. Since then, the bill has undergone major revisions through three parliamentary readings.
Chebet Kipingor, business operations manager for the crypto exchange Busha Kenya, stated that the bill signifies that Africa’s leading innovative economy is prepared to balance innovation with consumer protection, asserting that progress, not fear, will shape the digital future.
EU wants to expand its authority over crypto
Verena Ross, chair of the European Securities and Markets Authority (ESMA), announced on Monday that the agency seeks to regulate crypto exchanges and other operators.
This move would transfer oversight of crypto exchanges from national regulators to the pan-European ESMA. Ross believes this integration would enhance European market competitiveness and cohesion.
She emphasized that ESMA aims to tackle persistent market fragmentation to create a more unified capital market in Europe.
In September, concerns emerged from France’s Autorité des Marchés Financiers about inconsistent enforcement of the EU’s crypto law, the Market in Crypto-Assets (MiCA) regulation. Austria and Italy echoed these concerns following a review of Malta’s approval processes.
Bank of England gets softer on stablecoins
The Bank of England (BoE) appears to be easing its approach towards stablecoin restrictions, as reports from Tuesday indicate.
The BoE is reportedly re-evaluating its caps on corporate stablecoin holdings, potentially allowing exemptions for companies needing larger stablecoin reserves. Previous concerns about systemic risk prompted the BoE to enforce caps of 20,000 pounds for individuals and 10 million pounds for businesses.
Crypto exchanges and firms handling digital assets have argued that these limits unnecessarily constrain operations, particularly for exchanges needing to sustain trading fluidity and liquidity.
GC Cooke, a co-founder of the UK-based stablecoin management platform Brava Finance, noted that BoE governor Andrew Bailey seems to be more receptive to the idea of stablecoins coexisting with central bank-controlled assets, such as central bank digital currencies.
As the crypto industry gains visibility and significance, lawmakers are starting to take the sector more seriously. Regulators and legislators are engaging with greater nuance, recognizing the economic role of crypto.
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