MPs are calling for the Government to regulate trading in cryptocurrencies in the same way as gambling, amid concerns it poses significant risks to consumers.
Since the high-profile of collapse of Silicon Valley Bank earlier this year, which left millions of investors nursing losses totalling billions of dollars, there have been repeated calls for cryptocurrency regulation.
The Government has already announced plans to regulate trading and lending in the market, bringing it closer to the world of traditional finance.
Sink or swim: Cryptocurrencies are coming under increasing scrutiny from policymakers
Currently crypto firms only need to show they can comply with anti-money-laundering safeguards.
But today the Treasury Committee has published a report into unbacked cryptoassets, finding that they poses risks to consumers given their price volatility and the risk of losses.
The MPs aired concerns that regulating consumer crypto trading as a financial service would lead consumers to believe the activity is safe and protected.
Instead, the cross-party committee found it more closely resembles gambling than a financial service and should be regulated as such.
‘Regardless of the regulatory regime, their price volatility and absence of intrinsic value means that unbacked crypto-assets will inevitably pose significant risks to consumers,’ the report said.
‘Furthermore, consumer speculation in unbacked crypto-assets more closely resembles gambling than it does a financial service.
‘We are concerned that regulating retail trading and investment activity in unbacked cryptoassets as a financial service will create a “halo” effect that leads consumers to believe that this activity is safer than it is, or protected when it is not.’
During the pandemic, DIY investors flocked to crypto trading after leading currencies like Bitcoin and Etherum soared to new highs. HMRC data shows around 6million Britons hold or have held crypto-assets.
The committee chair Harriet Baldwin MP said: ‘The events of 2022 have highlighted the risks posed to consumers by the cryptoasset industry, large parts of which remain a wild west. Effective regulation is clearly needed to protect consumers from harm, as well as to support productive innovation in the UK’s financial services industry.
‘However, with no intrinsic value, huge price volatility and no discernible social good, consumer trading of cryptocurrencies like Bitcoin more closely resembles gambling than a financial service, and should be regulated as such. By betting on these unbacked “tokens”, consumers should be aware that all their money could be lost.’
The cross-party report has also called on the Government to take a balanced approach to the development of cryptoasset technologies.
‘It should seek to avoid expending public resources on supporting crypto-asset activities without a clear, beneficial use case, as appears to have been the case with the Royal Mint NFT. It is not the Government’s role to promote particular technological innovations for their own sake.’
The Government dropped its plans to produce a non-fungible token for sale through the Royal Mint last month, just under a year after it was announced by the then Chancellor Rishi Sunak.
Plans for a digital central-bank backed ‘Britcoin’ remain in place. The proposals would create a ‘digital pound’ issued by the Bank of England, accessed through digital wallets and interchangeable with cash and bank deposits.