MPs call for crypto trading to be treated as gambling
The high risk associated with crypto currency trading make it more akin to gambling than a financial service, MPs have said in a new report calling for regulation.
Cryptocurrency trading should be regulated as a form of gambling, the Treasury Committee has said in a new report claiming cryptocurrencies have “no intrinsic value and serve no useful social purpose”.
The report stated around 10% of UK adults hold or have held crypto assets, which the Committee argues pose a “significant risk to consumers” due to their volatility.
“The events of 2022 have highlighted the risks posed to consumers by the crypto asset industry, large parts of which remain a wild west,” said Harriett Baldwin MP, chair of the Treasury Committee.
“Effective regulation is clearly needed to protect consumers from harm, as well as to support productive innovation in the UK’s financial services industry.”
What are MPs calling for?
The committee called on the government to treat cryptocurrency trading as gambling due to its high risk nature.
It said that while it supported financial innovation that had potential benefits, these remained unclear when it came to cryptocurrency, while the risks posed to consumers, as well as the environment, were already “real and present”.
But it expressed concern that regulating retail trading in unbacked crypto assets could create a “halo effect” that would give consumers a false sense of security.
The report also recommended the Government avoid spending public resources on supporting crypto, citing the now-abandoned Royal Mint NFT.
Should cryptocurrency trading be treated as gambling?
MPs “may well have a point”, says Laith Khalaf, head of investment analysis at AJ Bell.
“Cryptoassets are hugely speculative and could easily end up worth nothing, leaving investors with zero to show for any money they have piled in,” Khalaf says. “Everyone probably knows of someone who has either made a packet or lost a packet trading crypto.”
It’s also worth noting that around five million people have purchased crypto assets – just shy of the six million people investing in stocks and shares ISA. “The conclusion must be that many people are leap-frogging tried and tested financial products, and diving straight into the deep end with crypto,” says Khalaf.
Cryptocurrency has become particularly popular among young people who are regularly targeted by ads on social media. Those with small sums to invest might be tempted to grow them tenfold by investing in cryptocurrency – but this is a gamble, as they might lose their investment.
“The reason for buying crypto is generally because everyone else is doing it, and so the price rises, not unlike the way a pyramid scheme works,” says Khalaf. “Those who get in and out early make out like bandits, while those who buy in at the peak of the frenzy crash and burn.”
That said, cryptocurrency “has become a gateway investment for many”, says Myron Jobson, senior personal finance analyst at interactive investor. There is potential for Blockchain to become a useful technology, and “telling a vast swathe of the population they are gamblers” might not sway them away from crypto.
“Ultimately, we need to see better financial literacy in the UK, and we also need to see the financial services industry make a better case for investing,” says Jobson.