A panel of British lawmakers has recently released a report suggesting that the trading of “unbacked cryptoassets” such as Bitcoin ($27,099) and Ether ($1,826) should be regulated as gambling rather than a financial service. The United Kingdom is working on a regulatory framework for cryptocurrencies that combines existing financial asset laws with new crypto-specific rules.
In a House of Commons Committee report published on May 17, the U.K. Treasury Committee “strongly recommended” treating retail crypto trading and investment activities as gambling, aligning with the principle of “same risk, same regulatory outcome.” The report argued that the price volatility and lack of intrinsic value associated with unbacked crypto assets inevitably pose significant consumer risks.
Harriett Baldwin, Chair of the Treasury Committee, expressed concerns about Bitcoin and Ether, which account for two-thirds of the total market capitalization of crypto assets, which she claimed are “unbacked.” She cautioned against regulating these activities as financial services, as it could create a false sense of safety among consumers.
In the United Kingdom, all forms of gambling, whether online or land-based, fall under the regulation of the Gambling Commission as per the Gambling Act 2005. The commission oversees gambling businesses such as bingo halls, lotteries, betting shops, online betting companies, and casinos, aiming to prevent problem gambling and enforce Anti-Money Laundering safeguards.
Lawmakers supporting the recommendation cited statements from Dr Larisa Yarovaya, an associate professor at the University of Southampton, who emphasized the need for stringent regulation of crypto exchanges, online trading platforms, and other crypto-asset businesses due to the addictive nature of crypto speculation.
However, the committee acknowledged the potential benefits of specific crypto assets and their underlying technology for financial services and markets. These include cost reduction in cross-border payments and improved financial inclusion. The committee emphasized the importance of implementing a practical regulatory framework in the UK to support these developments while mitigating associated risks.
The committee commended the government’s initiative to publish proposals on regulating crypto-assets used in financial services and expressed its support for such measures. The Treasury Committee comprises 11 members of Parliament from the Labor and Conservative parties, as well as the Scottish National Party, including Harriett Baldwin, who previously served as the economic secretary to the Treasury.
The committee launched the inquiry into the crypto industry in July 2022 to investigate crypto-assets’ role in the UK. Research conducted by the country’s tax authority, His Majesty’s Revenue and Customs (HMRC), revealed that 10% of UK citizens hold or have held crypto, with over 55% having never sold any. In Chainalysis’ 2022 crypto adoption index, the United Kingdom was ranked 17th.
In conclusion, the recommendation to regulate unbacked crypto-assets as gambling reflects the concern of British lawmakers about the risks posed by the price volatility and lack of intrinsic value associated with such assets. While recognizing the potential benefits of crypto assets and their technology, the committee emphasizes the need for a practical regulatory framework to balance opportunities and risks in the UK’s crypto industry.