In a recent report, a panel of British lawmakers has recommended regulating the trading of “unbacked cryptoassets” such as Bitcoin (BTC) and Ether (ETH) as gambling rather than a financial service. The United Kingdom is currently developing a regulatory framework for cryptocurrencies that combines existing financial asset laws with new crypto-specific rules.
The UK Treasury Committee expressed concerns about the volatility and lack of intrinsic value inherent in most crypto assets, which it believes pose significant risks to consumers. Chairperson Harriett Baldwin emphasized that Bitcoin and Ether, comprising two-thirds of the total market capitalization of crypto assets, are “unbacked.” The committee fears that regulating retail crypto trading and investment as a financial service could create a false sense of safety for consumers.
To address these concerns, the committee suggested applying the same regulatory principles as those governing the gambling industry. In the UK, all forms of gambling, including online and land-based activities, are regulated by the Gambling Commission under the Gambling Act 2005. This approach aims to prevent problem gambling and implement Anti-Money Laundering measures.
The lawmakers drew on the expertise of Dr. Larisa Yarovaya, an associate professor from the University of Southampton, who highlighted the addictive nature of crypto speculation. The committee argued that crypto exchanges, online trading platforms, and other crypto-asset businesses should be subject to stringent regulation.
Despite their reservations, the committee acknowledged the potential benefits of certain crypto assets and their underlying technology in financial services, such as reducing cross-border payment costs and enhancing financial inclusion. It emphasized the need for an effective regulatory framework to support these developments while mitigating associated risks.
The committee’s inquiry into the crypto industry, initiated in July 2022, aimed to explore the role of cryptoassets in the UK. Research conducted by the nation’s tax authority, HM Revenue and Customs (HMRC), revealed that 10% of UK citizens hold or have held cryptocurrencies, with the majority having never sold any. According to Chainalysis’ 2022 crypto adoption index, the United Kingdom ranked 17th.
By recommending regulation of crypto trading as gambling, the committee hopes to address the risks associated with crypto assets while acknowledging the potential benefits they bring to financial services. The forthcoming regulatory framework, which combines existing laws with new crypto-specific regulations, will play a crucial role in shaping the future of the UK’s crypto sector.
To summarise, the committee’s report highlights the growing recognition among policymakers of the need for robust oversight and consumer protection in the crypto industry. As the UK moves closer to implementing its regulatory framework, industry players and stakeholders will closely monitor its implications for the crypto sector’s development and market dynamics.