Treating crypto as gambling ‘a backward step’
MPs’ proposals to treat cryptocurrency as a form of gambling would be a backward step for the UK, according to a Scottish specialist in the sector.
Nick Jones, co-founder and CEO of Edinburgh-based crypto-as-a-service platform Zumo, said the UK should be encouraging alternative financial solutions rather than denigrating new ideas.
“What an appalling backwards step this would be,” he said. “Snatching defeat from the jaws of victory, just as it looked as though the UK was finally getting it’s act together on crypto.
“Given the recent turmoil in the traditional financial system, the UK should be looking to encourage alternative financial solutions, not discouraging them by likening them to gambling.
“A truly resilient future financial system shouldn’t be resistant to new ideas and structures, rather it should be supportive of them.
“And it should dare to integrate new ideas where they provide genuine value – not panic and revert to the perceived safety of failing methods.”
His comments came as the Commons Treasury Select Committee said retail investment in cryptocurrency. had levels of risk that they felt more closely resemble gambling.
The committee said “unbacked” crypto assets – typically cryptocurrencies with no fixed value – exposed “consumers to the potential for substantial gains or losses, while serving no useful social purpose”.
The MPs said: “These characteristics more closely resemble gambling than a financial service.”
Harriett Baldwin, chairwoman of the committee, said the report recommended “that the sort of speculative luring of people into buying particular cryptocurrencies” was treated like gambling.
Trade association CryptoUK rejected the committee’s findings, saying the MPs’ observations were “unhelpful, false, fundamentally flawed and unsubstantiated”.
Nimesh Shah, CEO of tax and advisory firm Blick Rothenberg, warned of the tax implications of any re-classifying of cryptocurrency.
He said: “HMRC should be concerned that this report has been published, as they have gone to great recent lengths to try and tackle tax avoidance and evasion around cryptocurrency transactions. HMRC have categorically confirmed in their guidance that trading in cryptocurrency should not be treated as gambling.”
He added: “If taken forward, this has major implications on how cryptocurrency transactions are assessed for tax purposes, as winnings from gambling are strictly exempt for capital gains tax.”
However, the MPs proposals secured backing from Laith Khalaf, head of investment analysis at AJ Bell, who said: “The Treasury Select Committee thinks the government should treat crypto purchases as gambling rather than investing, and they may well have a point.
“Cryptoassets are hugely speculative and could easily end up worth nothing, leaving investors with zero to show for any money they have piled in. Everyone probably knows of someone who has either made a packet or lost a packet trading crypto.”
Surveys suggest about one in 10 people in the UK hold crypto assets, most investing in cryptocurrencies such as Bitcoin and Ethereum.
Mr Khalaf added: “Around five million people have purchased crypto assets, which is only just shy of the six million people who hold a stocks and shares ISA, a mainstream account that has been available from trusted financial providers for almost a quarter of a century.
“The conclusion must be that many people are leap-frogging tried and tested financial products, and diving straight into the deep end with crypto. It’s easy to see why, especially among younger people exposed to crypto on social media.
“Many probably feel the small amount of money they have to put aside will never be enough to get on the housing ladder unless they magnify it tenfold. Crypto offers them a shot at achieving this, as does the roulette wheel. Of course, both may also leave you empty-handed.”
Warning of the dangers, he added: “There will be some people who are buying crypto with a small amount of money they can afford to lose, for a bit of fun. But equally there will be those who have staked too much, and in some cases borrowed to do so.
“The reason for buying crypto is generally because everyone else is doing it, and so the price rises, not unlike the way a pyramid scheme works. Those who get in and out early make out like bandits, while those who buy in at the peak of the frenzy crash and burn. Little wonder the Treasury Select Committee still sees fit to describe the crypto industry as ‘the wild west’.
“The Treasury Select Committee wants crypto to be regulated as gambling rather than as a financial service, but the concern is that putting a regulatory stamp on crypto assets will lend them credibility they perhaps don’t deserve.
“That is certainly a risk worth considering, though arguably treating crypto as gambling will remove the industry from some of the extremely onerous requirements of the financial services regime.
“Buying crypto is more akin to gambling than investing, but regulating it as such needs to be thought through very carefully to make sure it doesn’t end up being an easier ride.”