In a May report, a cross-party Committee of MPs proposed the regulation of consumer trading in unbacked crypto as a form of gambling. Unbacked cryptoassets, commonly known as cryptocurrencies, lack support from any underlying asset. Notably, Bitcoin and Ether comprise the majority share of the crypto market.
The Committee’s decision to classify retail trading in unbacked crypto as gambling stems from the high price volatility and inherent risk of losses associated with these assets. They argue that the nature of such trading aligns more with gambling than with traditional financial services, warranting regulatory oversight.
The MPs expressed concerns that if consumer crypto trading were regulated as a financial service, as suggested by the Government, it might create a false sense of security among users. This “halo” effect could lead individuals to believe that their activities are protected and safe, despite the inherent risks involved.
However, the Committee acknowledged the potential benefits of cryptoasset technologies, particularly in the financial sector, where they could facilitate cross-border transactions and improve payment systems in underdeveloped countries. Consequently, they urged the Government and regulators to stay abreast of technological advancements and avoid imposing undue constraints on potentially productive innovations.
In response, the Government has expressed disagreement with the Committee’s recommendation on treating crypto trading as gambling. Instead, they are committed to regulating retail trading in unbacked cryptoassets as a financial service.
According to HM Revenue & Customs, approximately 10 percent of UK adults currently hold or have previously held cryptoassets.