By Amelia Isaacs on Wednesday 17 May 2023
Crypto leaders slam the new recommendations as “an appalling step backwards”.
A new report on crypto regulation from the Treasury Committee has garnered significant backlash from leaders in the UK digital assets space.
The suggestions in the new report from the Treasury Committee, which include regulating consumer crypto trading in the same way as gambling, have been labelled as “misguided”, “wholly unsuitable” and “an appalling step backwards”.
According to the Treasury Committee, “unbacked cryptoassets have no intrinsic value, and their price volatility exposes consumers to the potential for substantial gains or losses, while serving no useful social purpose.”
The report stated that these characteristics more closely resemble gambling than a financial service, and expressed concerns around the ‘halo’ effect of leading consumers to believe retail trading and investment is “safer than it is” or “protected when it is not”.
It also cited input from former Financial Conduct Authority chair Charles Randell in making the recommendation.
“Speculative crypto is gambling pure and simple,” Randell said.
“It should be regulated and taxed as such, with levies to support the debt advice and addiction services for which it will fuel demand.”
The report quite clearly expressed the cross-party committee of MPs’ view that cryptocurrencies like Bitcoin and Ethereum have no intrinsic value, and no useful social purpose.
“What an appalling backwards step this would be,” Zumo co-founder and CEO Nick Jones said.
“Snatching defeat from the jaws of victory, just as it looked as though the UK was finally getting its act together on crypto.”
Kraken UK MD Blair Halliday said the crypto exchange “fundamentally disagree[s]” with this conclusion, expressing his regret that the committee doesn’t support the UK’s opportunity to be a global leader in the sector.
“Today, crypto is disrupting traditional financial systems across the world by removing intermediaries, offering lower overhead and transaction costs, and settling payments quickly. From using royalties to more fairly compensate artists for their work, to creating decentralised cloud storage systems, we see new use cases that are revolutionising our economy,” Halliday said.
According to HM Revenue and Customs, around 10 per cent of UK adults hold or have held cryptoassets.
The report said that unbacked cryptoassets not only have no intrinsic value, but that even with effective regulation will continue to pose “significant risk” to holders.
It said the propensity for dramatic gains and losses means they more closely resemble gambling than they do a financial service.
The comparison of cryptoassets to gambling drew the most indignation from industry leaders.
“Given the recent turmoil in the traditional financial system, the UK should be looking to encourage alternative financial solutions, not discouraging them by likening them to gambling,” Jones said.
“A truly resilient future financial system shouldn’t be resistant to new ideas and structures, rather it should be supportive of them. And it should dare to integrate new ideas where they provide genuine value — not panic and revert to the perceived safety of failing methods.”
Economist Dr Diarmid Weir told the committee “creating, purchasing and holding cryptocurrencies is nothing other than a form of gambling–with a zero-sum outcome and mainly benefitting scammers and those with inside access”.
“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,” Chair of the Treasury Committee Harriett Baldwin said.
“By betting on these unbacked ‘tokens’, consumers should be aware that all their money could be lost.”
The report also drew comparisons between the addictive nature of gambling and cryptoasset speculation.
CryptoUK board advisor Ian Taylor echoed Jones’ sentiments, describing the report as “unhelpful, false, fundamentally flawed and unsubstantiated”.
“The Treasury’s statement is in direct conflict with HMT’s consultation proposals on bringing activities, including operating a trading venue and performing intermediary activities, into the existing financial regulatory perimeter,” Taylor said.
“Professional investment managers see Bitcoin and other cryptoassets as a new alternative investment class – not as a form of gambling – and institutional adoption of unbacked crypto assets has increased significantly.
“Furthermore, gambling is exempt from capital gains tax. Does the Government really wish to exclude tens of millions of pounds in tax income from gains made by the buying and selling of unbacked crypto assets?"
Halliday agreed that the suggestion is “misguided and wholly unsuitable”.
“Not only does this miss the purpose and potential of the technology, but gambling protections will not offer the same safeguards as bespoke financial services regulations, on which the government recently consulted.
Halliday also expressed his disappointment that only one FCA-registered cryptoasset firm was represented on the committee’s evidence panel.
“Crypto is about building an inclusive alternative financial system that can benefit a range of people, and FCA-registered entities have a key role in exploratory discussions on the topic,” he added.
In the report, crypto technology company Ripple weighed in on the potential benefits of cryptoasset technology, particularly when it comes to improving cross-border payments.
“We were pleased to contribute to the TSC Report, which is thorough and balanced, and clearly recognises the real-world application of cryptoasset technology, for example for the improvement of cross-border payments, an obvious pain point in the traditional financial system,” Ripple policy director, EMEA Andrew Whitworth told AltFi.
“The TSC Report is right to focus on the need for strong protections for consumers who choose to invest in cryptoassets,” he continued.
“Ensuring consumers have the necessary transparency and disclosures around what they are investing in will allow them to make a considered choice. HMT's proposals for cryptoasset regulation should achieve this.
“Fundamentally, the regulation of cryptoasset activity is of vital importance both for consumer protection and the development of the UK's financial services industry.”
Despite the report generally stating the lack of “clear, beneficial use cases” for cryptocurrencies and digital assets, it did acknowledge the possible benefits of improving efficiency and reducing the cost of payments, both domestically and cross-border.
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