In recent years, there has been a significant surge in the popularity of cryptocurrency trading, with many retail traders flocking to the market in search of quick profits. With the increased adoption of cryptocurrencies by mainstream financial institutions and the growing acceptance of digital currencies in everyday transactions, it’s understandable why so many people are drawn to the crypto market.
However, recent events have prompted some UK lawmakers to call for greater regulation of the crypto retail trading market. A recent report from the UK Treasury Committee has suggested that crypto trading should be treated as gambling, and therefore subject to similar regulation as the gambling industry.
The report states that “crypto-assets should be regulated as a subset of the gambling sector”, and calls for greater protection for customers in the form of “restrictions on leverage, mandatory disclosure of profit-loss ratios, and measures to prevent consumers from losing more than their initial investment”.
One of the main reasons for this call for greater regulation is the high volatility of the crypto market, which can lead to large and sudden losses for retail traders. The report notes that “crypto-assets, due to their high levels of volatility, are inherently risky investments”, and that many retail traders do not have the necessary knowledge or experience to manage these risks effectively.
The report also highlights concerns over the lack of transparency in the crypto market, with some exchanges allegedly engaging in market manipulation and insider trading. The lack of regulation in the industry makes it difficult to detect and prevent these practices, which can lead to significant losses for retail traders.
By bringing crypto trading under the umbrella of gambling regulation, UK lawmakers hope to provide greater protection for consumers and prevent them from falling victim to fraud or manipulation. This would involve the introduction of stricter rules around advertising and marketing of crypto trading products, as well as mandatory disclosure requirements for brokers and exchanges.
Critics of the proposal argue that it could stifle innovation in the crypto market and slow down the pace of its development. They also point out that crypto trading is not necessarily the same as gambling, as it involves more than just pure luck and chance.
While it is true that crypto trading requires some level of skill and analysis, it is also true that many retail traders go into the market without fully understanding the risks involved. This is why greater regulation may be necessary to protect consumers from their own lack of knowledge or experience.
The UK is not the only country that is looking to regulate the crypto market more closely. Various governments around the world have been grappling with the issue of how best to regulate digital currencies, which are not subject to the same controls as traditional financial assets.
In the US, the Securities and Exchange Commission has been cracking down on initial coin offerings (ICOs), which are a popular way for companies to raise funds via cryptocurrency. The SEC has argued that many ICOs are in fact securities, and therefore subject to US securities laws.
In South Korea, the government has introduced tough new rules for cryptocurrency exchanges, including mandatory anti-money laundering measures and strict KYC (know your customer) requirements. The move comes after a spate of hacking incidents at South Korean exchanges, which raised concerns over the security of customer funds.
Overall, it seems clear that the crypto market will continue to evolve and grow in the coming years. However, it is important that this growth is managed in a responsible and sustainable way, with proper regulation in place to protect consumers from fraud, manipulation and excessive risk. This is why the UK lawmakers’ proposal to regulate crypto trading as gambling should be taken seriously and given due consideration.
A panel of British lawmakers has recommended that trading in “unbacked cryptoassets,” like Bitcoin (BTC) and Ether (ETH), should be regulated as gambling rather than a financial service. In a report published on May 17, the committee members argued that the extreme price volatility and lack of intrinsic value of such digital assets will “inevitably pose significant risks to consumers.” They called for the regulation of retail crypto trading and investment activity since it puts investors at the same risk as gambling and should have the same regulatory outcome.
The United Kingdom is currently developing a crypto regulatory framework that would combine current financial asset laws with new crypto-focused rules. While the lawmakers noted that crypto assets and their underlying technology have the potential to bring benefits to financial services and markets, they also want an effective regulatory framework to mitigate the risks associated with them.
The committee members cited written statements from Dr. Larisa Yarovaya, an associate professor from the University of Southampton who contended that crypto speculation “can be addictive” and suggested that crypto exchanges, online trading platforms, and other crypto-asset businesses should be regulated with the same strictness as gambling.
However, the committee said it recognized the potential for certain crypto assets and their underlying technology to reduce the cost of cross-border payments and enhance financial inclusion, among others. Thus, they recommended an effective regulatory framework to support these developments in the UK.
The lawmakers argued that all gambling in the UK, whether online or land-based, is regulated by the Gambling Commission under the Gambling Act 2005. Its supervision includes bingo halls, lotteries, betting shops, online betting firms, and casinos, seeking to prevent problem gambling and implement anti-money laundering protections all through the industry.
According to last year’s research by HM Revenue and Customs, which is the UK’s tax authority, more than 10% of UK residents hold or have owned crypto, with more than 55% never selling any. In Chainalysis’ 2022 crypto adoption index, Britain ranked 17th globally.
In conclusion, the UK Treasury Committee has strongly recommended regulatory changes for trading digital assets deemed to be unbacked tokens. The committee has recommended regulating retail crypto trading and investment activity as gambling, aimed at providing a safer environment for investors. The looming regulatory changes are in line with the gambling commission’s oversight across all gambling sectors in the UK.