Don’t treat crypto like gambling, even if it’s largely pointless

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Not even the heat of Miami can warm a crypto winter.

Devotees descended on Florida last weekend for the biggest bitcoin event in the world. Only half as many made the trip as in 2022. Some of the buzz and meme pieces are gone. So does the sense of indestructibility, after a year in which some of the biggest names in the crypto world crumbled and US agencies launched a series of enforcement actions in the sector.

There was also a Westminster chill last week, where an influential parliamentary committee suggested that crypto was not disruptive or renegade, but worse: borderline irrelevant. Unbacked crypto-assets, the Treasury select committee said, had no intrinsic value and served no useful social purpose. The right thing to do to protect consumers, he suggested, was to regulate this activity as gambling.

It was dismissive, attractive and, I think, wrong. The committee has a point on usefulness. You may be open-minded about the potential of distributed ledger technology, or even stablecoins and central bank digital currency, and still think that cryptocurrencies have absolutely failed to demonstrate their usefulness. , whether as a store of value, a medium of exchange or a tool for financial inclusion. . The industry always does a very poor job of explaining things, says Oliver Linch, managing director of Bittrex Global. It was a blink of an eye… if you know, you know, moon nonsense.

The committees’ concern was that financial regulation would mean a halo effect for this kind of guff, making a false sense of security a legitimate concern. But to say his game makes no sense legally, says Marc Jones, a partner at Stewarts Law, noting the ownership aspect of cryptoassets. Nor is it likely to result in effective regulation.

The line between financial regulation and gambling is already blurred. Spread betting and other types of leveraged transactions are taxed as gambling but regulated by the Financial Conduct Authority. Advertisements for betting platforms prominently display that 80% of retail accounts lose money, an early version of the FCA’s warnings in the absence of more powers.

Meanwhile, UK gambling regulations are still trying to catch up with the invention of the smartphone. It’s not fit for purpose, says Matt Zarb-Cousin, who is campaigning to clean up gambling. This year’s gambling reform proposals belatedly promise checks on free bets and other incentives. The FCA brought down the shares of spread-betters in 2016 with leverage limits and bans on bonuses and account promotions. Crypto (and spread betting) can do similar damage to gambling, says Zarb-Cousin. But it is better to integrate protections such as self-exclusion tools into the stricter financial framework.

Dividing the responsibility between regulators would be a mistake. The crypto universe is not neatly divided into conceivably useful and definitely useless. A split is an invitation to regulatory arbitrage. And the intersection of crypto with traditional finance should be of interest to regulators as much as the tokens themselves.

The committees’ report appears unlikely to prompt a change of direction from the government, which in February followed Europe and other jurisdictions such as Hong Kong in proposing to regulate crypto as part of existing financial services. UK.

That doesn’t make it insignificant. After many exciting discussions about the UK as a global crypto hub, the mood has changed and, oddly enough, this latest broadside may be getting stronger. Crypto will increasingly be asked to play by the rules of traditional finance. The committee is unlikely to push for a lighter touch in the name of innovation.

This is also true internationally. The US crackdown hinges on protecting investors using the same securities laws and standards as the rest of finance: there’s no reason to treat the crypto market differently just because different technology is used, SEC Chairman Gary Gensler said last year. Iosco, the umbrella body of global securities regulators, this week called on watchdogs to move faster to establish a level playing field between crypto-assets and traditional financial markets, including breaking up cryptocurrency firms. crypto where services such as brokerage, trading and custody are combined in a way that would be unacceptable elsewhere.

All the signs so far, from Binances’ problems obtaining licenses, to the low success rate of anti-money laundering registration in the UK, suggest that large parts of the crypto world, even those that want the warm glow of accreditation, will find it difficult to overcome basic obstacles, let alone a comparable standard. As the crypto winter rolls in, it won’t just be conference audiences that will have dwindled.

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