Consumer cryptocurrency trading should be regulated like gambling
The House of Commons Treasury Committee recently called for consumer trading in unbacked cryptoassets to be regulated as if it were gambling. A report from the cross-party Committee of MPs notes that cryptocurrencies like Bitcoin have no intrinsic value and serve no socially useful purpose, while consuming large amounts of energy and enabling fraud, scams, and money laundering.
Unbacked cryptoassets – aka cryptocurrencies – are not supported by any underlying asset and are the most prevalent form of cryptoasset, with Bitcoin and Ether alone accounting for two-thirds of all cryptoassets.
The Committee concludes that cryptocurrencies pose significant risks to consumers, due to their price volatility and the risk of losses. Given retail trading in unbacked crypto more closely resembles gambling than a financial service, the MPs have called on government to regulate it accordingly. The Committee is also concerned that regulating consumer crypto trading as a financial service – as currently proposed by the government – will create a ‘halo’ effect, leading consumers to believe such activity is safe and protected, when it is not.
Roughly 10% of UK adults hold or have held cryptoassets, according to HM Revenue & Customs. The Committee does recognise that technologies underlying cryptoassets may bring benefits to financial services, particularly in terms of cross-border transactions and payments in less developed countries, calling on government and regulators to keep pace with developments, so that potentially productive innovations are not unduly constrained.
Given that the future benefits of crypto remain unclear, however, they argue that the government should take a balanced approach to supporting the development of cryptoasset technologies and avoid spending public resources on projects without a clear beneficial application, as with its now-abandoned Royal Mint non-fungible token (NFT). It is not the government’s role, they argue, to promote technological innovations for their own sake.
Separately, the Committee is also considering central bank digital currencies.