Industry criticizes UK proposal to treat cryptocurrencies as gambling

Featured Sponsor

Store	Link	Sample Product
UK Artful Impressions	Premiere Etsy Store

Hello and welcome to the latest edition of the FT Cryptofinance newsletter. This week, we take a look at a call to Britain to treat cryptocurrencies as gambling.

The big Crypto story this week comes from London, where a group of cross-party politicians have called on the UK government to abandon plans to regulate cryptocurrencies and instead treat it like a gamble.

The report, which described cryptocurrencies as having “no intrinsic value” and “no discernible social asset,” left the digital assets industry seething.

“It’s not helpful, I just don’t understand who they’re listening to, to come to this conclusion,” Ian Taylor, adviser to British lobbying group CryptoUK, told me over the phone. “I spent so much time saying that technology brings a number of benefits to the financial markets and then they said the opposite is true.”

The Treasury Select Committee report comes at a sensitive time for the future of cryptocurrencies in the UK. The government has set itself the goal of establishing the UK as a “hub for crypto innovation”, corporate clichés be damned. It did so on the heels of the EU’s recently agreed Mica framework for digital assets, pitting London against Brussels, Paris and other European capitals in the race for cryptocurrency supremacy.

Just last week Andrew Griffith, the Treasury economic secretary and city minister, spoke at the FT Crypto Summit and said that the government is “trying to make sure the UK is a really good place to do business if you’re looking to take advantage of this amazing world, the whole Web 3.0 where cryptocurrencies can potentially be a really powerful and enabling technology within.”

Ultimately, that ambition could go up in smoke if cryptography is relegated to just another form of gambling. The industry would fall under the mandate of the 300-member UK Gambling Commission rather than London’s main financial watchdog, the Financial Conduct Authority.

“What a scary step backwards that would be,” Nick Jones, co-founder and CEO of digital assets company Zumo, told me.

Ben Lee, a partner in the crypto team at Andersen LLP, also said the committee’s report was “conspicuously silent” on how cryptocurrencies would be taxed, if they were treated as gambling.

“Winnings from gambling are generally tax free. . . HMRC has been trying to educate investors that cryptocurrencies are not tax-free, and this could create uncertainty as to whether this position is still correct.”

Earlier this year, the Treasury confirmed that from 2024 to 25, self-assessment tax return forms will include a standalone section for individuals and trusts who have divested crypto assets.

It is important to remember that this is only a commission report and not government policy. However, political winds and governments change, and calls to treat cryptocurrencies like gambling may one day land on a government far less enthusiastic about digital assets.

“Look, the current government most likely won’t change the course of policy, however they are obligated to respond, but that doesn’t mean an incoming government won’t change their mind and that is very detrimental to the job the industry is trying to do establish itself in the UK,” said Taylor.

The committee’s conclusion raises a question, however: How should we view cryptocurrencies, if the industry’s traditional outlets have failed?

Bitcoin was regularly floated as an inflation hedge, but lost more than 70% of its value in last year’s crash and has yet to recover significantly; decentralized finance and NFTs were supposed to unlock mainstream attention, but trading has been flat for months; the argument that it was a “safe haven” as US regional banks faltered seems exaggerated as the crisis eases; proponents argue that cryptocurrencies act as an empowering financial force in emerging markets, but only El Salvador and the Central African Republic have adopted it as legal tender.

So what’s left? As I pointed out eight months ago, crypto he needs a story to selland it’s up to the industry to tell us what that story should be.

What is your opinion on the committee’s call to push cryptocurrencies into the gambling world? As always, write me at scott.chipolina@ft.com.

Weekly highlights

• As the UK wrestles with its latest plan to undermine the crypto hub project, America’s crackdown on digital assets is pushing business, money and commerce overseas. Nasdaq-listed Coinbase and Gemini have stepped up plans to launch markets outside the US, while offshore stablecoin provider Tether has seen its market share increase by a fifth since January. Check out my story Here.

• Alameda Research, the commercial sister firm of FTX, is seeking to recover hundreds of millions of dollars paid to individuals and companies, including a venture capital vehicle owned by former British chancellor George Osborne. Check out my colleague Mark Vandevelde’s story Here.

• Binance announced on Thursday that it was no longer able to facilitate Australian dollar deposits for users due to “a decision made by our third party payment provider”. This isn’t the first time Binance has encountered problems paying with fiat currencies: earlier this year, it announced the suspension of US dollar transfers without giving a reason for the decision. The industry giant also encountered problems in the UK, when Paysafe, which was providing deposit and withdrawal services to the exchange, shut down its services.

• My colleagues Ivan Levingston and George Hammond published a story detailing how OpenAI head Sam Altman is close to securing around $100 million in funding for his plan to use eyeball scanning technology to create a cryptocurrency. global “secure” called Worldcoin. Previous investors in the company include Andreessen Horowitz’s crypto fund and none other than Sam Bankman-Fried. A dystopian nightmare or a benign use of technology? Discover the story Here.

Bite of the week: Justice Department doesn’t care about ‘too big to fail’ crypto companies.

It should come as no surprise by now that the United States has adopted a zero-tolerance approach to perceived bad behavior in the cryptocurrency sphere.

So much so that the industry has shared concern that a major crackdown on systemically important companies would deal a potentially fatal blow to the market.

Eun Young Choi, director of the Justice Department’s National Crypto Enforcement Team, told my colleague Stefania Palma that the DoJ doesn’t share the same concerns.

If a company “has built up significant market share in part because it has [flouting] U.S. Criminal Law,” the DoJ cannot “be in a position where we give someone a lift because they’re saying ‘well, now we’ve outgrown our failure.’”

Data mining: Circle’s USDC token quantity is decreasing on exchanges

The amount of USDC tokens, the stablecoin issued by US operator Circle, on centralized exchanges is at its lowest level since March 2021, CCData found.

In contrast, Tether, Circle’s main rival and by far the largest stablecoin provider in the world, has seen its namesake token’s share on exchanges steadily increase since the beginning of the year, recovering to pre-FTX levels. This time last year their market shares were split much more evenly.

Why the decline in the use of USDC? Circle deposited more than $3 billion with cryptocurrency-friendly Silicon Valley Bank in March. Uncertainty about its future caused the stablecoin to briefly lose its peg to the dollar.

Cryptofinance is edited by Philip Stafford. Please send any thoughts and feedback to cryptofinance@ft.com.