Consumer cryptocurrency trading has come under scrutiny as the Treasury Committee urges for its regulation as gambling. In a recently released report, the committee highlights the risks associated with unbacked crypto assets and emphasizes their use in criminal activities such as scams and money laundering.
Due to their lack of underlying assets and significant price volatility, the committee argues that consumer trading in these crypto assets more closely resembles gambling than a financial service and should be regulated accordingly.
Cryptocurrency Trading as Gambling
The committee strongly recommends that the government treats retail trading and investment activities in unbacked crypto assets as gambling instead of financial services, aligning with the principle of “same risk, same regulatory outcome.” According to HM Revenue and Customs (HMRC) data, approximately 10% of UK adults have held or currently hold crypto assets, underscoring the need for effective regulation to protect consumers.
While acknowledging the potential benefits of the underlying technologies for crypto assets, particularly in facilitating cross-border transactions and payments in less developed countries, the committee emphasizes the importance of striking a balanced approach. It calls for the development of crypto asset technologies to be supported but also cautions against allocating public resources to projects without straightforward and beneficial use.
Mitigating Risk in Cryptocurrency Trading
Harriett Baldwin, chair of the Treasury Committee, highlights the lack of intrinsic value, significant price volatility, and absence of discernible social good in consumer trading of cryptocurrencies like Bitcoin. Drawing a parallel to gambling, she asserts the need for regulation to safeguard consumers and prevent potential losses associated with unbacked crypto assets. Baldwin emphasizes that these tokens only hold value if someone is willing to purchase them at a higher price.
In response to the Treasury Committee’s report, industry body CryptoUK strongly disagrees with the conclusion that consumer trading in crypto assets should be regulated as gambling. They assert that professional investment managers view crypto assets as a new alternative investment class rather than a form of gambling, citing increased institutional adoption. While acknowledging the existence of consumer risk, CryptoUK advocates for education, awareness, and a robust regulatory framework to mitigate these risks.
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Perspectives on Gambling and Investment
The Treasury Committee’s findings reveal that three-quarters of investors in Bitcoin between 2015 and 2022 experienced losses, suggesting that the market relies on new entrants, with early investors and insiders benefiting at the expense of others. However, the report does not delve into the Bank of England’s plan to launch its digital currency, ‘Bitcoin,’ as it will be covered in a separate report. Unlike the criticized assets, the Bank of England’s cryptocurrency would be tied to the pound’s value.
In conclusion, the Treasury Committee’s report highlights the need for regulating consumer cryptocurrency trading as gambling due to the risks posed by unbacked crypto assets. While recognizing the potential benefits of crypto asset technologies, the committee emphasizes the importance of protecting consumers and promoting innovation within a robust regulatory framework. Striking a balance between risk mitigation and fostering development is crucial in the evolving landscape of cryptocurrencies.
FAQs On Cryptocurrency
- Is cryptocurrency trading the same as gambling?
- Cryptocurrency trading, especially when dealing with unbacked crypto assets, bears resemblances to gambling due to the lack of intrinsic value, high price volatility, and potential for significant losses.
- Why are unbacked cryptoassets considered risky?
- Unbacked cryptoassets pose risks to consumers because they lack underlying assets and are susceptible to price volatility, making them prone to scams, money laundering, and potential financial losses.
- How can regulation protect consumers from crypto scams?
- Regulation can establish guidelines and oversight that help prevent fraudulent activities, improve transparency, and safeguard consumers from potential scams and financial harm associated with crypto trading.
- Are there any benefits to cryptoasset technologies?
- Cryptoasset technologies can benefit financial services, such as facilitating cross-border transactions and payments, particularly in less developed countries.
- What are the implications of regulating crypto as gambling?
- Regulating consumer cryptocurrency trading as gambling would subject it to specific regulations to protect consumers and mitigate risks. It would also bring it under the purview of relevant gambling regulatory authorities.
