Retail investing in unbacked cryptoassets like Bitcoin should be regulated like gambling because they are highly volatile and have “no intrinsic value,” an influential panel of UK lawmakers said.
The Treasury Select Committee, a cross-party group of members of Parliament, “strongly recommended” such treatment for trading of digital tokens in a report published Wednesday.
The recommendation, which followed a months-long inquiry into how digital assets should be overseen, runs counter to the government’s February proposal to regulate crypto like traditional financial services. Regulating retail cryptocurrency trading like gambling would also be a departure from how other major jurisdictions treat the asset class.
“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,” the report said.
Around 10% of UK adults hold or have held cryptoassets, the report said, citing data from HM Revenue & Customs. By convention, the government must respond to the report within about two months of publication, but it’s not required to follow the recommendations.
Putting investing in Bitcoin on par with betting on sports or in a casino reflects the panel’s view that cryptocurrencies have “no intrinsic value, huge price volatility and no discernible social good,” making them fundamentally different from traditional financial assets, Harriett Baldwin, who chairs the committee, said in a statement.
The UK levies steep taxes on the gambling industry to help finance services like advising on how to handle debts and addiction. Gambling businesses must also verify customers’ identities and take measures to prevent money laundering.
Countries like Singapore have taken steps in the past two years aimed at limiting retail trading in cryptocurrencies, arguing that the volatile nature of such assets make them ill-suited for most people. Millions of people around the world suffered crippling losses last year as prices collapsed and a host of crypto companies, from Celsius to FTX, imploded.
The committee collected testimony from crypto firms including Binance and Galaxy Digital, current and former senior officials at the Financial Conduct Authority, as well as academics, economists and other industry participants.
It criticized the UK government for spending public resources on supporting crypto activities “without a clear, beneficial use case” and singled out a since-scrapped plan by the Royal Mint to create a nonfungible token. That was one of the most visible aspects of a campaign led by Prime Minister Rishi Sunak last year to market the UK as a crypto hub. At the time, Sunak was the UK’s finance minister.