According to the politicians, the high volatility and alleged absence of inherent worth in the majority of cryptocurrency assets pose significant risks to consumers.
In a recent report, a group of British lawmakers suggested that the trading of “unbacked cryptoassets” like Bitcoin (BTC) and Ether (ETH) should be classified as gambling rather than a financial service and subjected to regulatory measures. The report highlights the need for treating these assets as speculative activities with similarities to gambling rather than traditional financial transactions.
Currently, the United Kingdom is in the process of developing a regulatory framework for these currencies that combines existing financial asset laws with newly introduced rules specifically tailored for the industry.
This approach aims to address the unique characteristics and challenges posed by digital assets while leveraging the existing regulatory infrastructure in place for traditional financial assets.
Nonetheless, according to a report from the U.K. Treasury Committee released on May 17, it is strongly advised to regulate retail digital asset trading and investment activities as gambling. The committee supports the idea of applying the principle of “same risk, same regulatory outcome,” which implies that activities with similar risks should have comparable regulatory measures in place.
The report contended that the inherent risks to consumers are inevitable due to the price volatility and absence of intrinsic value associated with unbacked digital assets.
According to Harriett Baldwin, the Chair of the Treasury Committee, Bitcoin and Ether account for two-thirds of the overall market capitalization of digital assets. She further asserted that both cryptocurrencies are considered “unbacked” in nature, lacking underlying support or tangible assets.
In the United Kingdom, the regulation of all forms of gambling, including online and land-based activities, falls under the purview of the Gambling Commission, as mandated by the Gambling Act of 2005. The Gambling Commission oversees various types of gambling establishments, such as bingo halls, lotteries, betting shops, online betting companies, and casinos. Its primary objectives include preventing problem gambling and implementing measures to combat money laundering through Anti-Money Laundering safeguards.
The lawmakers supporting their stance referenced statements made by Dr. Larisa Yarovaya, an associate professor at the University of Southampton. Dr. Yarovaya emphasized the need for stringent regulation of crypto exchanges, online trading platforms, and other businesses involved in crypto assets. She highlighted that speculation can potentially be addictive, warranting comparable levels of regulation as other addictive activities.
The committee acknowledged the potential advantages that certain crypto assets and their underlying technology can bring to financial services and markets, marking a minor victory for the cryptocurrency industry. These benefits include the potential to lower the expenses associated with cross-border payments and enhance financial inclusion.
The committee recommended the establishment of a robust regulatory framework in the United Kingdom that facilitates and supports these advancements in the industry while effectively addressing and minimizing the risks associated with crypto assets.
The committee comprises 11 members of Parliament from various parties, including the Labour Party, Conservative Party, and the Scottish National Party. Harriett Baldwin, a former economic secretary to the Treasury, is among the committee members.
The committee initiated an inquiry into the crypto industry in July 2022, with the objective of examining the role of crypto assets within the United Kingdom.
Research conducted by Her Majesty’s Revenue and Customs (HMRC), the country’s tax authority, in the previous year revealed that 10% of UK citizens currently hold or have held cryptocurrencies, while over 55% of them have never sold any.
In the 2022 crypto adoption index by Chainalysis, the United Kingdom was ranked 17th in terms of crypto adoption.