By Huw Jones

LONDON (Reuters) – A plunge in the value of bitcoin and other cryptoassets has eased the pressure on Britain's financial watchdog to take radical action that could deter investment and financial innovation, government officials and regulators said on Tuesday.

The rapid growth in bitcoin and other initial coin offerings last year prompted regulators and central bankers around the world to take a closer look at the sector.

But a fall in the value of cryptoassets over the past year as investors lose interest, and a drop in bitcoin, which fell as much as 10 percent on Tuesday to below $4,500, has eased the pressure to issue tough new rules.

British regulators and government officials told a conference they were focused on how 2,000 or more cryptoassets slot into existing rules before considering reforms.

“We want to take the time to look at that in a bit more depth and make sure we take a proportionate approach,” Gillian Dorner, deputy director for financial services at Britain's finance ministry, told a City & Financial conference.

Britain faces the challenge of balancing an innovative economy with maintaining consumer protection, stable markets and thwarting financial crime, she said.

Christopher Woolard, executive director for strategy and competition at the Financial Conduct Authority, said there is a need to clarify “grey edges” around the existing regulatory perimeter.

The FCA will consult by the end of this year on where the perimeter lies for cryptoassets, he said.

“This will help clarify which cryptoassets fall within the FCA's existing regulatory perimeter, and those cryptoassets that fall outside.”

The finance ministry would then consult on whether the perimeter itself needed shifting, he added.

A task force of the finance ministry, FCA and Bank of England last month recommended a ban on the sale to retail customers of derivatives products linked to cryptoassets.

But Woolard said unilateral action by just one country had its limits, and the FCA will seek to work collaboratively with international counterparts.

Global regulatory bodies have so far been unable to reach a consensus on rule changes and have instead opted to monitor the sector more closely.

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