A UK government committee has suggested cryptocurrencies pose risk for consumers, serve no social purpose, consume large amounts of energy, and are used by criminals for fraud, and as such should not be regulated as financial services.
The MPs acknowledged that technologies underlying crypto assets can be a valuable tool in financial markets when it comes to cross-border transactions and payments in less developed countries. However, they voiced concerns that “regulating consumer crypto trading as a financial service—as proposed by the government—will create a ‘halo’ effect, leading consumers to believe this activity is safe and protected, when it is not.”
“The events of 2022 have highlighted the risks posed to consumers by the crypto asset 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,” said Harriett Baldwin, chair of the Treasury Committee.
She also reiterated that gambling was a better description for the trade of cryptocurrencies.
Volatile Market
Since it became available in 2009, Bitcoin has experienced several price spikes and crashes. The price exploded in 2021, reaching a record high of slightly over $64,000 (£51,300).The Bank for International Settlements (BIS) has estimated that 73–81 percent of investors that entered the Bitcoin market between 2015 and 2022 were likely to have lost money on their investments.
Under the new plans, the government will place responsibility on crypto trading exchanges for defining the requirements for admission and disclosure documents, ensuring exchanges have fair and robust standards.
Pros and Cons
The MPs recognised the potential benefits of crypto assets to improve the efficiency and reduce the cost of payments, particularly cross-border.“It is no secret that the cross-border transfer system is broken. It takes three to five days. Up to 6 percent is chewed up in fees. Blockchain and crypto can help solve those problems and help money move much more efficiently than it does in the current system,” Susan Friedman, head of policy at crypto technology company Ripple Labs Inc., told the committee.
The MPs heard merchants are starting to see the benefit in the UK of accepting a stablecoin as a means of payment versus a credit card payment because it is significantly cheaper.
“Credit card fees are over 2 percent now. A stablecoin issuer can get that down to 1 percent,” Ian Taylor from the trade association CryptoUK told lawmakers.
Currently, the FCA has oversight to check that crypto firms have effective anti-money laundering and terrorist financing procedures in place, but generally crypto assets themselves are not regulated.
According to HM Revenue and Customs, around 10 percent of UK adults hold or have held cryptocurrencies.
In the United States, federal regulators are meant to assess the broad risks and benefits offered by cryptocurrencies, according to the White House’s “Roadmap to Mitigate Cryptocurrencies’ Risks,” published in January 2023.
The government plan encouraged Congress to “expand regulators’ powers to prevent misuses of customers’ assets.”
