An influential cross-party committee of UK parliamentarians highlights that cryptocurrencies such as Bitcoin have no intrinsic value. Moreover, they serve no useful social purpose while consuming large amounts of energy. And are being used by criminals in scams, fraud and money laundering.
The Committee concludes 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.
The Committee is also concerned that regulating consumer crypto trading as a financial service – as proposed by the government – will create a ‘halo’ effect. This will lead consumers to believe this activity is safe and protected, when it is not.
10% of UK adults hold or have held crypto
Around 10% of UK adults hold or have held crypto-assets, according to HM Revenue & Customs.
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.
“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.
Lack of regulation: one of the biggest challenges
Alisa DiCaprio, Chief Economist at R3, said: “Events of the past year have shown that crypto is a high-risk asset. It would benefit from targeted smart regulation and greater consumer safeguards. However, it is vital that the UK Treasury uses policy as a means of bolstering innovation rather than hindering it. Finding this right balance will require close collaboration between the public and private sector, across all industry and market participants.
“Lack of regulation is undoubtedly one of the biggest challenges facing the industry, creating uncertainty and a reluctance to engage with the technology. Smart regulation – tailored to the unique attributes of the crypto market – can serve as the platform for more stringent user protections. And the required guidelines on how the underlying distributed ledger and blockchain technology is applied.”
CryptoUK rejects Treasury Committee’s crypto “gambling” claim
Predictably, CryptoUK takes issue with the select committee conclusions. Ian Taylor, Board Advisor at CryptoUK, said: “CryptoUK strongly disagrees with the Treasury Committee’s conclusion. We are both concerned and disappointed by 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’s statement is in direct conflict with HMT’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 cryptoassets as a new alternative investment class – not as a form of gambling – and institutional adoption of unbacked crypto assets has increased significantly.
“Furthermore, gambling is exempt from capital gains tax. Does the government really wish to exclude tens of millions of pounds in tax income from gains made by the buying and selling of unbacked crypto assets?”