The UK government has rejected a call by a senior Lawmaker to treat cryptocurrencies like gambling, in a major move for the British cryptocurrency market. Grant Shapps MP, the chairman of the All-Party Parliamentary Group on Crypto-Assets, argued to place cryptocurrency investments under the regulation of the Gambling Commission. The rejection of the proposal suggests the government wishes to tread more carefully with this type of asset, forging ahead with a more cautious posture on cryptocurrency offerings.
1. UK Government Refuses to Regulate Cryptocurrency as Gambling
The United Kingdom Government announced on 17th July this year its decision not to regulate cryptocurrencies as a form of gambling. This announcement comes after months of debates over the issue. According to the statement from the Government, cryptocurrencies will continue to be treated as a financial instrument and will continue to be subject to GST and other taxes in the UK.
The decision put an end to the uncertainty of cryptocurrency industry players about its legal status in the UK. While the debate has been heated, the Government was clear that gambling laws are not applicable to cryptocurrencies as the currency does not meet the legal definition of a gambling product. This statement concurs with the position taken by other European countries like France and Germany.
- Claims Disputed: The statement from the UK Government has been disputed by some members of the cryptocurrency community. They claim that there is an ongoing problem of unregulated gambling platforms operating in the UK, which are using cryptocurrencies to finance their activities.
- Anti-Money Laundering: At the same time, the UK has signaled that it is taking measures to ensure compliance with Anti-Money Laundering (AML) regulations, while also taking a close look at Initial Coin Offerings (ICOs) to make sure they are compliant with UK laws.
The UK government’s decision not to regulate cryptocurrencies under gambling laws opens the way for an increased application of blockchain technology. The UK government’s statement not only shows a willingness to regulate this sector but also to take advantage of its potential. It is likely that the UK will continue to monitor developments in the crypto space and take actions to ensure its regulation and safety for the customers.
2. Lawmakers Call for Clarity on Cryptocurrency Regulation
Since the inception of cryptocurrency, the question of how it should be regulated has been a hotly-debated topic in the financial world. Several governments have acted swiftly in recent weeks, attempting to fix the uncertain legal status of crypto assets.
Lawmakers across the world have started to push for clarity on these regulations. A joint mission from the European Commission and Council of Europe recently proposed new guidance to help member states legally recognize digital assets. In the US, Congressional representatives were set to introduce a new bill in the Senate that would create a framework for crypto taxes and require greater disclosure from crypto exchanges.
The exact details of these proposed laws are yet to be seen, but it is clear that questions of regulation need to be resolved. Businesses and investors are relying on clarity from their respective governments on how these assets should be treated. This week, the Committee on Financial Technology in the UK has also promised to be discussing forthcoming guidance.
- European Commission and Council of Europe proposed new guidance on digital assets.
- US Senate bill aims to create a framework for crypto taxes and greater disclosure from exchanges.
- UK Committee on Financial Technology discussing forthcoming guidance.
3. Dangers of Unregulated Cryptocurrency Markets Highlighted
Due to its anonymous and decentralized nature, the unregulated cryptocurrency markets are often subject to high levels of fraud and manipulation. This can impose risks for both novice and experienced investors. Here, issues such as pump and dump schemes, market manipulation and money laundering are highlighted.
Pump and dump schemes are used to drive up the price of a cryptocurrency quickly, causing other investors to buy stocks. This eventually leads to an artificial price increase, after which those behind the scheme soon sell their holdings and pocket the profit. Such transactions made in unregulated markets are very difficult to track and prosecute.
Market manipulation is also a major risk, with large sums of money regularly being used to purchase a large amount of crypto tokens with the aim of manipulating its price. This is even more dangerous in unregulated areas as technology such as bots and flash trades – which is a predetermined trade order made of multiple orders submitted simultaneously - can be used to further influence the market.
Finally, money laundering is a major problem in the cryptocurrency sector due to its anonymity. Regulatory bodies have become increasingly concerned about the potential for criminals to launder money undetected through cryptocurrencies. This makes it a much higher risk than other, more mainstream forms of investments.
4. Impact of UK Government Rejection on Cryptocurrency Regulations in Europe
The United Kingdom’s decision to reject cryptocurrency regulation on the European stage has had a significant impact for other European countries. Here, we discuss three such effects.
Growth of Local Crypto Marketplaces: As the UK government rejected plans to create a unified European framework for regulating cryptocurrency, the burden falls on individual countries to develop their own rules and regulations. This has seen a large increase in local crypto marketplaces, where traders can enjoy welcome bonuses for trading, enhanced liquidity, and a better user experience.
- Germany: Binance recently launched their EU-based exchange, Binance.de, which has seen a massive surge in popularity among German traders who want to take advantage of the relatively lax regulations.
- France: Coinbase have opened a French entity, allowing French traders to access their full suite of trading and payment services.
- Spain: Coinmama has become one of the most popular crypto exchanges in Spain, with over 100,000 traders using the platform.
Increased Interest in Decentralized Exchanges: In the wake of the UK’s decision, there has been a surge in the number of decentralized exchanges. These exchanges do not hold traders’ funds, making them much less attractive to regulators which leaves them free to offer traders access to a wide range of assets and services with minimal oversight. Subsequently, many decentralized exchanges have seen an uptick in trader activity.
Delay in Regulatory Initiatives: The lack of unified regulation has caused a delay in many countries’ efforts to develop their own regulatory frameworks. For example, Spain’s new regulations for crypto exchanges, due to come into effect this year, were delayed until 2022 as the government struggles to create a tailored policy. However, the delay is not only due to the UK’s rejection but also due to the fast-evolving nature of cryptocurrency, which means regulation often fails to keep up with the changing industry.
Expectations that the UK government would treat Cryptocurrency in the same way as gambling have been thoroughly put to bed by this most recent decision. It remains to be seen whether any policy changes will be made in the future, but as of now, Cryptocurrency owners in the UK are safe from the extra regulation.