The Treasury Committee has called on the UK's government to regulate consumer cryptocurrency trading as gambling.
In a report published today (17 May), the committee warned that cryptocurrencies posed "significant risks to consumers" due to their price volatility, and that regulating them as a financial service, as proposed by the government, would lend them "unwarranted legitimacy".
MPs argued that cryptocurrencies "have no intrinsic value and serve no useful social purpose", while being used for criminal activities and consuming large amounts of energy.
"Given retail trading in unbacked crypto more closely resembles gambling than a financial service, the MPs call on the government to regulate it as such," it said.
About 10% of UK adults hold or have held cryptoassets, according to HM Revenue and Customs.
While the report acknowledged that the technology behind cryptocurrencies "may bring benefits to financial services", adding that potentially productive innovations should not be unduly constrained by regulators, it warned that the risks currently posed by the sector are "real and present".
Instead, it said the government should take a "balanced approach" to the sector, such as through ensuring that the Financial Conduct Authority's authorisations gateway is "open and effective".
It also said that the government should not spend public resources on projects without a "clear, beneficial use", pointing to the now-abandoned Royal Mint non-fungible token (NFT).
"It is not the government's role to promote particular technological innovations for their own sake," the report said.
The committee is considering central bank digital currencies as a separate piece of work, it added.
Kate Gee, counsel at law firm Signature Litigation, warned that while regulation of the sector was overdue, "caution must be taken" if regulators attempt to fit cryptocurrencies into an existing regulatory framework.
"While there may be similarities between crypto and, as suggested here, gambling, the two sectors are not the same," she said.
"Europe has taken steps to regulate the sector, and the UK government taking an approach that is informed, comprehensive and co-ordinated (across jurisdictions) will be welcome and most effective - drawing on its experience of regulating financial services and other relevant sectors, including gambling," she concluded.
Harriett Baldwin, chair of the Treasury Committee, said: "The events of 2022 have highlighted the risks posed to consumers by the cryptoasset industry, large parts of which remain a wild west.
"Effective regulation is clearly needed to protect consumers from harm, as well as to support productive innovation in the UK's financial services industry."
