Cryptocurrencies like Bitcoin do not pose a risk to financial stability, but need to be monitored, while the government may take two years to regulate the sector, two new reports have warned.

City-headquartered law firm RPC said any government regulation could take a long time to come into force.

Based on past extensions of the Financial Conduct Authority’s remit, it would likely take around two years to regulate the crypto market.

Legal director James Kaufmann said: “Even if MP’s latest proposals were fast tracked, it could still take years for regulations to cover the UK cryptocurrency market that treads the middle ground between protecting retail participants and allowing the UK’s cryptocurrency market to thrive.”

“Bringing a complex and fast evolving area like cryptocurrencies into a regulatory framework is going to be a difficult and lengthy process.

"Added to this, big issues like Brexit are already occupying a lot of regulator’s time."

RPC said the size of such legislation calls into question whether the FCA has the capacity and funding to handle the expansion of its role.

James Kaufmann added: “The race to establish a workable and regulated regime for cryptocurrencies is surely worth winning as their usage becomes more widespread across Europe and globally.

"The creation of a cryptocurrency trading hub may also have positive knock-on effects for businesses serving these markets, such as brokers, investment banks, and custodians as well as a potential increase in tax revenues for authorities.”

The Financial Stability Board, a monitor of financial vulnerabilities, said that despite huge volatility in crypto assets, outstripping the dotcom bubble and tulip mania, it is still a tiny part of the world economy.

The $210bn crypto market only equals around 3 per cent of the value of global gold reserves, and 0.9 per cent of the S&P 500, it said.