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.
Released today, the Treasury committee report follows an inquiry into crypto assets which has been running since last summer. A year ago, the government was trumpeting its ambition to turn the UK into a global crypto hub, but since then several high profile failures, including Terra and FTX, have seen the popularity of digital currencies decline. None the less, 10% of UK adults hold or have held some form of crypto asset, the report says.
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 by real world assets – as financial services products.
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 by the government – will create a ‘halo’ effect, leading consumers to believe this activity is safe and protected, when it is not.”
Harriett Baldwin MP, chair of the Treasury Committee, said: “The events of 2022 have highlighted the risks posed to consumers by the crypto asset 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 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.
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” by the report. Ian Taylor, board advisor at CryptoUK, said: “These claims which are unhelpful, false, fundamentally flawed and unsubstantiated. The statement fails to reflect the true nature, purpose and potential of the crypto industry.”
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.”