The UK Treasury Committee has proposed to bring the trading of cryptocurrencies under existing gambling regulations, claiming that digital assets including bitcoin and ether offer “no intrinsic value and serve no useful social purpose, while consuming large amounts of energy and being used by criminals in scams, fraud and money laundering”.
In an extensive report filed to the House of Commons, the cross-bench committee, which exerts influence on policy, administration and spending, concluded that “cryptocurrencies pose significant risks to consumers, given their price volatility and the risk of losses.
“Given retail trading in unbacked crypto more closely resembles gambling than a financial service, the MPs call on the Government to regulate it as such.”
How to regulate crypto has become a major source of debate across the UK, European Union and the US, which all have differing opinions on the matter.
US regulators have been chastised for their regulation-by-enforcement approach, while EU member states yesterday voted to adopt the sweeping Markets in Crypto-Assets framework.
In the UK, policymakers have opted to retrofit existing securities regulations. A consultation is currently underway.
In the Treasury Committee’s statement, MPs warned of a “halo effect” if the government opts to regulate crypto trading as a financial survive “leading consumers to believe this activity is safe and protected, when it is not”.
“The events of 2022 have highlighted the risks posed to consumers by the cryptoasset industry, large parts of which remain a wild west,” said Treasury Committee chair Harriett Baldwin.
“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.
A Treasury spokesperson indicated ministers would likely reject the committee’s recommendation, telling Sky News: “Risks posed by crypto are typical of those that exist in traditional financial services and it’s financial services regulation – rather than gambling regulation – that has the track record in mitigating them.”
Laith Khalaf, head of investment analysis at AJ Bell, also warned of the risks involved in treating crypto as a gambling product, noting that it would remove the industry from some of the “extremely onerous requirements of the financial services regime”.
“Buying crypto is more akin to gambling than investing, but regulating it as such needs to be thought through very carefully to make sure it doesn’t end up being an easier ride,” said Khalaf.