Trading in cryptocurrencies is akin to gambling and should be treated as such, British lawmakers said.
Unbacked tokens like bitcoin and ether aren’t underpinned by underlying assets and have “no intrinsic value,” lawmakers on the U.K. Treasury Select Committee said in a report published Tuesday.
With a combined market capitalization of $737.7 billion, bitcoin and ether alone account for two thirds of all cryptocurrencies.
The events of the past year in the crypto industry — from the downfall of crypto exchange FTX to the decline of stablecoin experiment Terra — have drawn heightened scrutiny from regulators, who are concerned by negative effects on consumers.
In its Tuesday report, the Treasury Select Committee said the heightened volatility and potential to lose huge sums of money mean that cryptocurrencies pose significant risks to consumers, the committee said.
“Given retail trading in unbacked crypto more closely resembles gambling than a financial service, the MPs call on the Government to regulate it as such,” the lawmakers said.
“The events of 2022 have highlighted the risks posed to consumers by the cryptoasset industry, large parts of which remain a wild west,” Harriett Baldwin, chair of the Treasury Select Committee, said Tuesday. “Effective regulation is clearly needed to protect consumers from harm, as well as to support productive innovation in the UK’s financial services industry,’ she added.
“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.”
Around 10% of U.K. adults hold or have held cryptocurrencies, according to British tax agency HM Revenue & Customs.
The Treasury committee said it was concerned by government proposals to regulate consumer crypto trading as a financial service. This, lawmakers said, would create a “halo” effect that leads people to believe crypto trading is safe and protected, when this is not the case.
In February, the government laid out plans to regulate crypto assets and opened its suggestions up for a consultation whose window closed on Apr. 30.
Such a regulatory framework would potentially allow crypto firms to apply for bespoke licenses to operate in the U.K — historically, a major point of contention for U.K. firms. The Financial Conduct Authority, which is the de facto regulator for crypto firms under the country’s money laundering regime, has set a high bar for approval of crypto licenses.
Blair Halliday, U.K. managing director for top U.S. crypto exchange Kraken, said: “We fundamentally disagree with the Treasury Select Committee’s conclusion that cryptoassets have no intrinsic value. It’s regrettable the committee does not support the opportunity the UK has to be a true global leader in our rapidly developing industry.”
“We strongly believe the U.K. Government and FCA are on the right path to developing proportionate regulations which support innovation whilst establishing necessary guardrails and customer protections,” Halliday added. “Kraken will continue to collaborate with legislators to help achieve these goals.”
In April, a top U.K. government official told CNBC that he expected to see specific regulation for crypto in the U.K. in the next 12 months.
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