“We strongly recommend that the (UK) Government regulates retail trading and investment activity in unbacked crypto assets as gambling rather than as a financial service, consistent with its stated principle of ‘same risk, same regulatory outcome’,” reads the report by the Treasury Committee which consists of MPs from various political parties in the United Kingdom (UK).
It highlights that cryptocurrencies such as Bitcoin and Ether have no “intrinsic value and serve no useful social purpose, while consuming large amounts of energy and being used by criminals in scams, fraud and money laundering.”
The report concludes that these assets will pose significant risks to consumers inevitably. It noted that nearly 10 per cent of UK citizens hold or held crypto assets in the past.
“The events of 2022 have highlighted the risks posed to consumers by the cryptoasset industry, large parts of which remain a wild west,” Harriett Baldwin, Chair of the Treasury Committee, said in a statement.
It adds that “regulating retail trading and investment activity in unbacked crypto assets as a financial service will create a ‘halo’ effect that leads consumers to believe that this activity is safer than it is, or protected when it is not”.
Why it matters: It is important to note this report because the UK can end up serving as a blueprint for other nations given the cross-border nature of crypto assets. Moreover, India has reiterated on multiple occasions on how it would like to foster global consensus on crypto regulation which is the only way to ensure that laws are effective and there is no advantage of regulatory arbitrage.
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What are the use cases: The report said that distributed ledger technologies such as those used in crypto assets can bring benefits to the economy. The most convincing use case is the potential to improve the efficiency and reduce the cost of making payments, especially cross-border and in lower income countries with less developed financial sectors, as per the report.
Extent of benefits remain unclear: “The extent of the benefits crypto asset technologies may bring to financial services in the future remains unclear,” the report said. It urged the UK Government to take a “balanced approach” towards supporting the development of crypto technologies, and avoid dedicating public resources on supporting such activities.
Risks from crypto: The report observed that crypto assets such as Bitcoin and Ether display “considerable price volatility, with periods of strong price appreciation in value often followed by equally rapid price falls”.
- It said that activity in some crypto assets continues to consume very large amounts of energy especially the largest crypto asset by market capitalisation—Bitcoin.
- It also flagged concerns around the corporate governance and controls within crypto firms. The risks posed to investors by poorly-run businesses were highlighted by several high-profile failures of crypto asset firms over 2022 such as FTX.
India’s efforts to regulate crypto: The country has been busy trying to attain global consensus to regulate crypto assets. Shaktikanta Das, Governor, Reserve Bank of India (RBI), said that efforts were on to come up with an international framework to regulate crypto assets.
- A recent government survey called for a global policy framework on crypto to address risks stemming from such assets. A coordinated approach has also been propagated by the Indian Prime Minister at various international fora in the past.
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