A panel of cross-party British lawmakers recommended trading of ‘unbacked’ crypto assets like Bitcoin and Ether to be regulated as gambling. A House of Commons Committee report published on Wednesday highlighted that cryptocurrencies are volatile, exposing traders to a high risk of losses, and, as such, these instruments resemble gambling.
The report noted, cryptoassets span a wide and constantly evolving range of digital instruments such cryptocurrencies are not supported by any underlying asset and so have no intrinsic value. Unbacked crypto assets remain the most prominent form of crypto asset, with the largest two (Bitcoin and Ether) alone accounting for around two-thirds of the total market capitalization of all crypto assets. But there are currently more than 23,000 crypto assets of various forms in existence.
The size of the global crypto asset market has fluctuated in recent years, reflecting the significant price volatility of many crypto assets, but remains small relative to the size of traditional financial markets. The total market capitalization of crypto assets currently stands at $1.2 trillion (0.2 per cent of the $487 trillion of total global financial assets, down from a peak of $2.9 trillion in November 2021.
Gambling is legal in the United Kingdom. Both online and land-based gambling, including bingo halls, lotteries, betting shops, online betting companies, and casinos, are regulated by the Gambling Commission under the Gambling Act 2005.
Additionally, the UK allows spread betting, a type of financial derivative that allows you to bet on the future price of an asset. Though spread betting is considered gambling in the country for tax purposes, the activities are regulated by the Financial Conduct Authority (FCA) and not the Gambling Commission.
The UK levies steep taxes on the gambling industry to help finance services like advising on how to handle debts and addiction. Gambling businesses must also verify customers’ identities and take measures to prevent money laundering.
The Committee undertook an inquiry into digital currencies in 2018. The Report from that inquiry highlighted the significant risks posed to consumers by crypto assets, describing the crypto asset industry as a “wild west” and recommending that the Government introduced regulation to protect consumers if it decided that the growth.
The report highlighted that the possible benefits of crypto asset technologies is their potential to improve the efficiency and reduce the cost of payments, particularly cross-border. Further, Cryptoassets also have the potential to improve the efficiency and reduce the cost of domestic payments.
But crypto assets also pose significant risks. In particular, unbacked crypto assets pose significant risks to consumers, given their significant price volatility and associated risk of losses. They can consume very large amounts of energy and are also used by criminals in scams, fraud and money laundering.
Effective regulation of crypto assets should help to foster innovation and maximize any potential benefits of crypto asset technologies for the UK, while also mitigating risks. It is important that the Government and regulators strive to keep pace with developments, including by ensuring that the Financial Conduct Authority’s authorizations gateway is open and effective, so that potential productive innovation in financial services is not unduly constrained.
