The UK’s cross-party Treasury Committee has called for unbacked consumer cryptocurrency trading to be regulated as gambling rather than as a financial service. It said that while bringing benefits to financial services and cross-border transactions, cryptocurrencies have no intrinsic value and serve no useful social purpose.
Given the price volatility of cryptoassets and the massive losses that people can make, the Committee said they pose a “significant risk” to consumers. Unlike shares in a company, which have value because of the underlying asset (the business), most cryptocurrencies are simply valued based on what the next person is willing to pay and has no underlying asset. The MPs believe this is more akin to gambling behaviour than investing.
The Committee said regulating crypto as a financial service could create a halo effect. This means that more risk-averse consumers would falsely believe that the activity is safe and protected when it’s not.
Commenting on the report, Harriett Baldwin MP, Chair of the Treasury Committee, said:
“The events of 2022 have highlighted the risks posed to consumers by the cryptoasset 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 Committee is considering central bank digital currencies as a separate piece of work.”
As a result of the Committee’s report, it strongly recommends that the government regulates trading and investment activity in unbacked cryptoassets as gambling rather than as a financial service.