Following a thorough inquiry into the cryptocurrency industry, the UK Parliament’s Treasury Committee has recommended that authorities regulate cryptocurrency trading as a form of gambling instead of a financial service.
In a report published on Wednesday, MPs emphasized the importance of the government avoiding the misuse of taxpayer funds in promoting technological innovations like digital tokens without demonstrating clear public benefits.
Drawing a parallel to gambling, MPs concluded that cryptocurrency trading and investing can be addictive. While recognizing the potential benefits of the underlying blockchain technology for the broader financial services sector, they expressed concern that speculating on the volatile prices of unsupported assets such as Bitcoin could result in significant financial losses for consumers.
Conservative MP and Chair of the Treasury Committee, Harriett Baldwin, emphasized the need for effective regulation to protect consumers and promote product innovation in the UK’s financial services industry. She stated that due to the absence of intrinsic value, high price volatility, and the lack of discernible social benefit, consumer trading of cryptocurrencies like Bitcoin more closely resembles gambling than a financial service and should be subject to appropriate regulation.
The Treasury Committee’s recommendations could influence the government’s approach to cryptocurrency regulation, which is currently under consideration following a public consultation.
The Treasury Committee’s report highlighted that consumers should be aware that betting on unbacked “tokens” in cryptocurrency trading carries the risk of losing all their money.
These recommendations could influence the government’s ongoing plans to regulate cryptocurrencies following a consultation earlier this year. It has been widely anticipated that cryptocurrency trading would eventually fall under the purview of the Financial Conduct Authority (FCA), which currently oversees compliance with money-laundering regulations and will soon be responsible for monitoring advertisements.
However, the Treasury Committee cautioned against regulating cryptocurrency trading as a financial service under the FCA, as it may create a misleading “halo effect” that gives consumers a false sense of safety or protection from financial losses.
The report suggested that regulating cryptocurrencies as gambling would align with the government’s principle of applying the same regulatory outcomes to similar risks.
In addition, the report criticized the government’s recent initiative to create a non-fungible token (NFT) through the Royal Mint. NFTs are unique digital assets stored on a blockchain, the same decentralized ledger used for buying and selling cryptocurrencies like Bitcoin. The project, which had been criticized by the Labour Party as a “crypto gimmick,” was abandoned in March, less than a year after its announcement.
The Treasury Committee emphasized the importance of the government adopting a balanced approach to technology and urged them to refrain from allocating public resources to support cryptoasset activities without a clear and beneficial use case. The committee pointed to the failed non-fungible token (NFT) project as an example of such misdirected efforts.
The committee stated that it is not the government’s role to promote specific technological innovations solely for the sake of doing so.
No official response was immediately available from the Treasury or the CryptoUK industry group regarding the committee’s recommendations.