The Treasury Select Committee, a cross-party group of MPs in the UK Parliament, released a report today that proposed strict regulations on retail investments in crypto.
The report is highly critical of the crypto market which, the MPs said, “continues to be dominated by unbacked “cryptocurrencies” such as Bitcoin and Ether that we do not consider to have any intrinsic value.” While the report accepted that crypto could benefit traditional financial services and the wider economy – such as “improving the efficiency and reducing the cost of making payments, especially cross-border and in lower income countries with less developed financial sectors” – the Committee sought to emphasise “significant risks to consumers.”
What are these risks? The Committee pointed out that “unbacked cryptoassets typically display considerable price volatility, with periods of strong price appreciation in value often followed by equally rapid price falls.” This exposes consumers to a high risk of losses. The Committee noted research from the Bank of International Settlements (BIS) that estimated that 73-81% of users that entered the Bitcoin market between 2015-2022 lost money on their investment.
A further risk the Committee outlined was the use of crypto “to perpetuate scams, fraud, and money laundering, with estimates of the proportion of global cryptoasset trades that are related to crime ranging from 0.15 percent to 46 percent.” Despite the recent moves to transition to a less energy-intensive “proof of stake” model for crypto,” the Committee still believes that “crypto activity continues to consume very large amounts of energy.”
Crypto advocates have condemned the Treasury Select Committee’s criticisms and suggested that this approach to the decentralised space could undermine the UK’s competitiveness.
Ian Taylor, Board Advisor at CryptoUK, said:
“CryptoUK strongly disagrees with the Treasury Committee’s conclusion, and we are both concerned and disappointed by these claims which are unhelpful, false, fundamentally flawed, and unsubstantiated. The statement fails to reflect the true nature, purpose, and potential of the crypto industry.”
“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,” he added.
“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?” Taylor asked.
The UK Parliament is clearly determined to mitigate risks to consumers in what is undoubtedly a volatile market. But is equating to gambling fair or reasonable? Taylor certainly thinks not.
“We acknowledge that consumer risk exists, and this should be mitigated through education, awareness, and a more robust regulatory framework,” he said.
“But equating cryptocurrency with gambling is both unhelpful and untrue.”
Author: Harry Clynch
