UK Government Eyes Crypto as Gambling, Not Finance

In a move that could have wide-ranging implications for the industry, the Parliamentary Treasury Committee in the UK has called for a new approach to regulating cryptocurrency trading. The Committee urges the UK government to regulate such activities more akin to gambling rather than as a financial service. This call follows a new inquiry into the cryptocurrency industry.

The Need for Robust Regulation

In their report released on Wednesday, the Committee stressed the need to avoid squandering taxpayer funds on promoting technological innovations like digital tokens without concrete public benefits. Drawing parallels between gambling and cryptocurrency trading, the report highlighted the potential for addiction associated with such activities.

While the Committee recognized the possible advantages of blockchain technology for the broader financial services sector, it also expressed concerns about the risks posed to consumers by speculative trading in cryptocurrencies. Harriett Baldwin, the Conservative MP and Chair of the Treasury Committee, stated, “Consumer trading of cryptocurrencies like bitcoin more closely resembles gambling than a financial service, and should be regulated as such. Consumers must be aware that they could lose all their money in these unbacked token bets.”

Current Regulatory Plans Under Review

The government’s intentions to formally regulate cryptocurrencies could be influenced by the recommendations of this report. Plans are currently under review following a consultation earlier this year. It has been widely anticipated that cryptocurrency trading regulation will ultimately be entrusted to the Financial Conduct Authority (FCA), which presently enforces firms’ compliance with anti-money laundering rules and is expected to take over advertisement oversight soon.

The Committee, however, warned against treating cryptocurrency trading as a financial service and regulating it via the FCA, cautioning that this could mislead consumers into thinking the industry is safer than it actually is, or that they are protected from financial losses.

The report further noted that regulating cryptocurrencies as gambling aligns with the government’s principle of “same risk, same regulatory outcome.”

A Cautionary Tale: The Failed NFT Project

The Committee also drew attention to the government’s failed attempt to launch a non-fungible token (NFT) through the Royal Mint. Criticized as a “crypto gimmick”, the project was discontinued in March, less than a year after it was announced. NFTs are unique digital assets stored on a blockchain, the same decentralized transaction ledger used to buy and sell cryptocurrencies like bitcoin.

In light of this, the Committee advised the government to adopt a balanced approach to technology and avoid spending public resources on supporting crypto-asset activities without a clear and beneficial use case. It underscored that the government’s role is not to promote particular technological innovations for their own sake.