Treasury Committee suggestions that consumer cryptocurrency trading should be regulated as gambling are an “appalling backwards step“, according to the chief executive of an Edinburgh-based crypto-as-a-service platform.
Co-founder Nick Jones commented: “Given the recent turmoil in the traditional financial system, the UK should be looking to encourage alternative financial solutions, not discouraging them by likening them to gambling.
“A truly resilient future financial system shouldn’t be resistant to new ideas and structures, rather it should be supportive of them.
“And it should dare to integrate new ideas where they provide genuine value – not panic and revert to the perceived safety of failing methods.”
In a new report, the committee called for consumer trading in unbacked crypto assets to be treated in regulation the same way as gambling.
The cross-party committee of MPs said cryptocurrencies such as Bitcoin are being used by criminals in scams and money laundering.
Unbacked cryptoassets pose significant risks to consumers, given their price volatility and the risk of losses, according to the MPs, who said retail trading in unbacked crypto more closely resembles gambling than a financial service and should be regulated as such.
“We 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’,” read the statement.
The committee pointed to HM Revenue and Customs figures indicating that around 10% of UK adults hold or have held cryptoassets,
The MPs also said potential productive innovation in financial services should not be unduly constrained, noting that potential benefits include safer cross-border transactions and payments in less developed countries.
A balanced approach should be taken to supporting the development of cryptoasset technologies, while avoiding spending public resources on projects without a clear, beneficial use, the MPs said.
Harriett Baldwin, chair of the Treasury Committee, said: “The events of 2022 have highlighted the risks posed to consumers by the cryptoasset industry, large parts of which remain a wild west.
“Effective regulation is clearly needed to protect consumers from harm, as well as to support productive innovation in the UK’s financial services industry.
“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.
A Treasury spokesperson said: “Risks posed by crypto are typical of those that exist in traditional financial services and it’s financial services regulation - rather than gambling regulation - that has the track record in mitigating them.
“Crypto offers opportunities but we are taking an agile approach to robustly regulating the market, addressing the most pressing risks first in a way that promotes innovation.”
Ian Taylor, board adviser at trade association CryptoUK, said the body “strongly disagrees” with the Treasury Committee’s conclusion.
“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.”
Taylor continued: “We acknowledge that consumer risk exists, and this should be mitigated through education, awareness and a more robust regulatory framework. But equating cryptocurrency with gambling is both unhelpful and untrue.”
Baldwin told Times Radio on Wednesday: “There is some good technology behind cryptocurrencies, cryptoassets, which has the potential to lower transaction costs for consumers, particularly in countries that don’t have particularly well-developed payment and banking systems.
“But we’ve also noticed that there’s been a proliferation of these unbacked cryptoassets… they really have no intrinsic value, they’re not really backed by anything, they’re a speculative vehicle.”
Baldwin added: “Back in the history books you may remember reading about a tulip bulb mania that took place I think in the 17th century, really these cryptoassets that are unbacked only have value if someone will buy them off you and you’ll only make money if they’ll buy them off you at a higher price.”
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