Trading of cryptocurrencies like Bitcoin should be legally classed as a form of gambling because these coins serve “no useful social purpose”, a group of MPs has said.
The Treasury Committee published its report on how cryptocurrencies should be regulated, amid widespread concerns about a lack of oversight in place for the trading of the highly volatile assets. A 2018 Treasury Committee report labelled the crypto sector a “wild west”.
“Nothing we have heard in our current inquiry has changed that impression,” the Committee said today.
The report said that while there may be some benefits of certain forms of cryptocurrency and more widely in blockchain technology, it noted that the market was currently dominated by “consumer speculation in unbacked cryptoassets such as Bitcoin and Ether”.
“These characteristics more closely resemble gambling than a financial service, an impression reinforced by the evidence we have received of consumer behaviour,” the Committee said.
“Unbacked cryptoassets have no intrinsic value, and their price volatility exposes consumers to the potential for substantial gains or losses, while serving no useful social purpose.
While many have called for cryptocurrencies to be regulated by City watchdog the Financial Conduct Authority, the Treasury Committee warned that this could create a “halo effect”, where people assume that these currencies must have an air of legitimacy about them because they are regulated alongside traditional financial products.
“We therefore strongly recommend that the Government regulates retail trading and investment activity in unbacked cryptoassets as gambling rather than as a financial service, consistent with its stated principle of ‘same risk, same regulatory outcome’,” the Committee said.
This would mean the Gambling Commission would be put in charge of cryptocurrency regulation, and trading firms would have to apply for gambling licences. Crypto firms’ revenues would likely also be subject to betting duties under this proposal.
However, cryptocurrency industry body CryptoUK strongly disagreed with the MPs.
Ian Taylor, board advisor at CryptoUK, said: “CryptoUK strongly disagrees with the Treasury Committee’s conclusion, and 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.
“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?”
Among the Committee’s findings were that three quarters of investors in Bitcoin from 2015-2022 lost money, which it said proved the market was “sustained by new entrants”, while early investors and insiders “cash out at their expense”.
The report did not consider the Bank of England’s plan to launch its own ‘Britcoin’ digital currency, which will instead be covered in a seperate report. Unlike many of the assets that the Treasury Committee criticised, the bank of England’s own cryptocurrency would be tied to the value of the pound.
