Stablecoins, UK Policy Clashes, and Retail Crypto’s Rise: Could ETFs and CFDs Be Next?

Increased Custody Options to Give Stablecoins a Boost

Many of the world’s largest banks have increased their crypto custody strategies recently.

Earlier this year, both State Street and JPMorgan Chase announced plans to introduce a cryptocurrency custody service line in 2026, and US Bancorp has refocused on this service line. Now, we hear that Citi is looking to follow suit, with the global head of partnerships and innovation for the bank’s services division stating that it is prioritising custody for high-quality assets backing stablecoins.

With the vast majority of stablecoin transactions taking place outside the banking system and the potential for these cryptocurrencies to enter the payments mainstream, banks have an obvious incentive to offer related services.

These moves are also partly a response to increased regulatory requirements – last month, the Hong Kong Securities and Futures Commission updated its controls for licensed custodians of virtual assets.

Banks are particularly keen to benefit from increased appetite for virtual assets among institutional investors in the US, where a joint statement issued in July by the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) clarified the responsibilities of banks holding crypto assets for customers.

Financial institutions under the supervision of the OCC have been able to conduct cryptocurrency custody activities as long as they implement appropriate third-party risk management practices.

However, this trend is also evident in Europe, where Deutsche Bank reportedly intends to launch cryptocurrency custody services next year.

Commerzbank launched a crypto custody offering for corporate clients in 2024, BBVA has partnered with Binance to provide off-exchange custody for its customers’ digital assets, and it has also been suggested that Sberbank is preparing to offer custody services for cryptocurrency assets.

Regardless of location, though, banks will have to ensure their compliance teams are prepared for an increased workload and that their systems are capable of identifying potential anti-money laundering and counter-terrorism financing violations.

UK Policymakers Digitally Divided

The head of the central bank and the government’s chief finance minister appear to be at odds over the future of digital money in the UK.
In a speech to the National Bank of Ukraine in June, Andrew Bailey suggested that to pass the test of being money, stablecoins must provide assurance of nominal value and that many of the current versions do not quite reach that standard.

He went on to say that he remained unconvinced of the need to create new forms of money such as central bank retail digital currency to realise the benefits of digital technologies in the area of payments.

“To be clear, I am not against stablecoins,” he said. “I am not against central bank retail digital currency, but I question why it is needed if innovation proceeds as I think it should.”

Read more: New FCA Crypto Custody Rules Would Force Firms to Upgrade Security

Bailey went even further during a recent media interview, suggesting that stablecoins created by banks and pegged to assets such as the dollar could pose a threat to the whole financial system and advocating focusing on tokenised deposits or digital money instead.
These comments are significant as they come at a time when legislative developments in the US have encouraged the likes of Bank of America, Citi, and JP Morgan to issue stablecoins.

In her latest annual Chancellor address, Rachel Reeves said she planned to advance developments in stablecoins, which are benefiting from growing demand for dollar-denominated assets that sit outside the traditional banking sector.

Bailey’s remarks also point to differences of opinion not just between the Bank of England and the Chancellor of the Exchequer, but between senior figures within the bank. The executive director of financial market infrastructure told a recent conference that the Bank of England was open minded to stablecoins being able to provide innovation that could also be useful for wholesale markets.

With the UK not set to publish guidelines on stablecoins equivalent to the Genius Act or MiCA until next year, key policymakers need to get their affairs in order.

FCA Opens the Door for Retail Crypto ETNs

Another area where the UK lags its European rivals is in retail access to crypto exchange traded notes. ETN providers such as 21Shares, WisdomTree and Invesco have seen minimal trading in their professional investor products in the UK since they were introduced in May.

These firms and others will hope that the FCA’s decision to allow retail customers access to these products from next month will set the scene for crypto ETFs and possibly even CFDs down the line, although the UK financial regulator remains wary of endorsing the latter, even with low leverage.

To ensure the integrity of the products, the FCA has proposed that crypto ETNs would only be allowed to trade on an FCA-approved, UK-based recognised investment exchange and will have to provide accurate information to potential investors.

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One of the approved exchanges, LSEG, has analysed the listing and trading profile of the crypto ETNs on its market compared to other European primary exchanges to understand how these products currently trade.

It says this analysis has revealed that crypto ETN volatility has profiled similarly to all individual stocks within the FTSE 100 and has been less volatile than stocks in the FTSE 250.

LSEG suggests that many of the 25 issuers that have listed more than 150 crypto ETNs with a variety of underlyings across Europe are keen to enter the UK market, and there is potential for considerable product innovation.

The exchange observes that some €26 billion was traded on European exchanges in 2024 – an increase of more than 300% year on year compared to the previous 12 months – and expects similar growth this year.

However, 21Shares has criticised the decision to prohibit access to products not listed on UK exchanges and called for a transparent eligibility framework for a broader range of cryptoassets as underlyings for crypto ETNs. It will be interesting to see to what extent these limitations affect the appetite of other providers to enter the UK crypto ETN market.