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Cryptocurrencies should be regulated like gambling rather than financial services, says a new report from a committee of MPs, who are concerned the digital tokens “have no intrinsic value and serve no useful social purpose”. The recommendations in the report from the Treasury Select Committee come at a time when the government is consulting on plans to regulate certain types of crypto asset in the same way as traditional financial products.
Cryptocurrency a ‘significant risk’ to UK consumers
The report claims cryptocurrencies pose “significant risks to consumers, given their price volatility and the risk of losses.” It says: “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.”
Earlier this year the government ran a consultation on plans to regulate cryptocurrencies, such as Bitcoin and Ethereum, and so-called stablecoins – cryptocurrencies backed The results of this consultation have yet to be published, but in its report the committee says it is “concerned that regulating consumer crypto trading as a financial service – as proposed Harriett Baldwin MP, chair of the Treasury Committee, said: “The events of 2022 have highlighted the risks posed to consumers “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 report recognises that blockchain, the distributed ledger technology that underpins cryptocurrencies, could have benefits for the financial sector. It has been used to speed up international trade, though several major blockchain-based trade platforms have shut down in recent months.
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It recommends the government takes a “balanced approach to supporting the development of cryptoasset technologies.” It says ministers should “seek to avoid expending public resources on supporting cryptoasset activities without a clear, beneficial use case”, citing a plan to issue a Royal Mint-backed NFT that was shelved in March. “It is not the government’s role to promote particular technological innovations for their own sake,” the report says.
UK crypto industry hits back
Unsurprisingly, the UK cryptocurrency industry does not agree with the conclusions of the committee.
Industry body CryptoUK said it is “both concerned and disappointed” Taylor added: “The Treasury Committee’s statement is in direct conflict with the Treasury’s consultation proposals on bringing activities, including operating a trading venue and performing intermediary activities, into the existing financial regulatory perimeter.
“Professional investment managers see Bitcoin and other crypto assets as a new alternative investment class – not as a form of gambling – and institutional adoption of unbacked crypto assets has increased significantly.”
Adding that he believes cryptocurrencies can be a force for good, particularly when it comes to serving the unbanked – those excluded from traditional financial systems – Taylor said: “We acknowledge that consumer risk exists, and this should be mitigated through education, awareness and a more robust regulatory framework. But equating cryptocurrency with gambling is both unhelpful and untrue.”