In May 2023, the UK parliament’s Treasury committee supported the idea that crypto trading should be regulated like gambling. Bringing up similarities between the two industries, with the most common point being their element of risk. However, this sparked much debate globally with crypto enthusiasts saying the politicians couldn’t be more wrong.
It’s quite interesting that more than a decade later, cryptocurrencies remain a heavily misunderstood subject. After Satoshi Nakamoto published Bitcoin’s white paper in 2009, it became a new frontier in the financial markets. Some people referring to crypto as “ the currency of the future.”
But, with governments in control of the circulation of paper money, it’s easy to see why crypto poses a great threat. Unlike our current currencies, which are controlled by banks and markets, cryptocurrencies aren’t controlled by anyone and their value is determined by the people. With the potential of crypto to rise and fall at any time, crypto trading has become a lucrative venture, thus UK politicians deem it a gambling trade and not a financial service.
Politicians: “Same Risk, Same Regulatory Outcomes”
Gambling has been around for many years and is an industry with its pros and cons. Sure it does generate a lot of revenue for governments through taxes, but at the cost of severe addiction and huge losses to some players. That’s why most countries, including the US, are cautious about its approach and are very serious about its regulation.
The whole industry operates on an element of risk, where players don’t know the outcome of a game—whether it’s slots, blackjack, poker, or roulette. That’s why playing at an online casino is encouraged for entertainment purposes only and not as a way to earn a passive income.
Coming from this line of thought it’s easy to see why some people see no difference between online gambling and crypto trading. For the latter, the chance to cash in big comes from buying a crypto token at a lower value and anticipating it to skyrocket then selling it.
In October 2010, the price of a single Bitcoin was $0.2. Flash forward to November 2021, and the price of one Bitcoin was $69,000. The crypto industry exploded to include many other tokens like Ethereum, Litecoin, Dogecoin, and Ripple, all of which could be traded. Truth be told, many people made big bucks from these trades, and many more lost money.
Another concern brought up by Harriett Baldwin, the Treasury committee chair, was that cryptos aren’t supported by any underlying asset. The report also indicated that cryptocurrencies have “no intrinsic value, have a huge price volatility and no visible social good.” A recommendation proposed in the report was a “same risk, same regulatory outcome” for cryptos to be categorized in the same group as gambling.
Crypto Community: “It’s Better To Take Small Steps Than Move Fast And Break Things”
What does it mean if crypto trading is considered gambling? It means that platforms would be required to follow extra regulatory rules on licensing and have know-your-customer (KYC) policies in place. Something that goes against what crypto is all about. It might also prompt regulation in terms of marketing and advertising as well as limits on how much one can buy/sell.
To the crypto community, the response on the matter doesn’t come as a surprise because it is almost impossible for governments to give up control. With crypto, no one is in control, and is a currency by the people for the people.
It’s also not right to say cryptocurrencies don’t have any intrinsic value just because there are no “traditional assets” to back them. According to Metcalfe’s Law, the financial value of a network is proportional to the number of users connected to the network. Simply put, the more the users, the higher the value of the network. Cryptocurrencies bank on this law and generate their value from the many people acquiring and transacting using the specific token.
Another example is how Apple Inc’s total asset value was valued at $352.5 billion in September 2023, yet the company is valued at $2.946 trillion in terms of market capitalization as of December 2023. Showing that at times, assets don’t necessarily back the value of a company or currency.
Rather than viewing crypto trading as a “gambling” venture, it should be viewed as a transfer of tokens from buyers to sellers and vice versa, from where it derives its value from. In the journey of crypto, it’s better to take baby steps rather than move fast and break things. Take Switzerland, for example, the country’s financial regulator has permitted some parts of Zurich to pay certain taxes using crypto.
Is There An Answer?
Every day, the crypto and blockchain world continues to evolve, bringing up new possibilities and challenges. While both fronts have valid points on whether crypto should be a gambling venture or a financial service, maybe we should be patient and give it time. Both might be right or wrong, only time will tell.
