May 27th, 2023: Is it time to regulate Bitcoin and altcoins? If we ask some policymakers in the United Kingdom, the answer is ‘yes.’
In several reports in the past week, several Members of the Parliament or MPS now call for regulating cryptocurrency as gambling since its use poses significant consumer risks. The report says that authorities view crypto trading as gambling, not a financial service.
MPs also stated that the UK authorities should use their money wisely to only promote technological innovations like digital tokens by giving them clear use. MPs concluded that crypto trading and investment could also be addictive, like gambling.
Is it time for effective regulation of crypto?
Although this blockchain technology benefits the financial services industry, it has potential risks to consumers. For example, betting on the unbacked assets’ volatile price could lead to significant losses. Thus, regulating it for gambling purposes may reduce the risk among consumers.
“Effective regulation is needed to protect consumers from harm, as well as to support productive innovation in the UK’s financial services industry,” according to Conservative MP and Treasury committee chair Harriett Baldwin.
“However, with no intrinsic value, huge price volatility, and no real 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,” Baldwin added.
Bitcoin and other crypto a popular payment options for online gambling
In the UK, crypto trading is regulated by the Financial Conduct Authority (FCA). FCA ensures the compliance of firms with anti-money laundering rules. As one of the most popular financial services in the UK, cryptocurrency is already used in gambling. However, Bitcoin and other cryptocurrencies are not backed by current assets. This leads to price volatility and the possibility of losing all money.
The FCA has repeatedly warned consumers they could lose the money invested in cryptocurrencies. In the report, the MPs Treasury committee said, “Regulating retail trading and investment in unbacked cryptocurrencies could create a ‘halo’ effect that leads consumers to think the activity is safer than it is, or protected when it is not.”
MPs suggest the need to provide clear benefits and use of cryptocurrency not just as a financial service but also as a form of gambling. The recommendation to regulate gambling can potentially influence the government’s decision. It calls for the need to take a balanced approach to technology and avoid crypto asset activities without giving its clear beneficial use. The report also pinpointed the UK government’s efforts to produce non-fungible tokens (NFTs) via the Royal Mint. Like any other digital tokens in the industry, NFTs are digital assets on blockchain technology that uses the same transaction ledgers as Bitcoin.
“The risks posed by cryptocurrencies were “typical” of those posed by financial services, “and it is financial services regulation – rather than gambling regulation – that has the track record in mitigating them,” a Treasury committee spokesperson said.
The report suggests that regulating cryptocurrencies as gambling would be consistent with the principle of”same risk, same regulatory outcome” allowed by the government. Despite MPs’ recommendations, CryptoUK strongly disagrees with equating gambling with the crypto sector.