Industry slams UK proposal to treat crypto as gambling

Hello and welcome to the latest edition of the FT Cryptofinance newsletter. This week, we’re taking a look at a call in Britain to treat crypto as gambling.

Crypto’s big story this week comes from London, where a cross-party group of politicians called on the UK government to abandon plans to regulate crypto and instead treat it as gambling.

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

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

The Treasury select committee’s report comes at a delicate time for the future of crypto assets 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 has done so in the wake of the EU’s recently agreed Mica framework for digital assets, setting London against Brussels, Paris, and other European capitals in the race for crypto supremacy.

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

Ultimately, that ambition could go up in smoke if crypto was relegated to just another form of gambling. The industry would fall under the remit of the UK’s 300-strong Gambling Commission instead of London’s premier financial watchdog, the Financial Conduct Authority.

“What an appalling backwards step this would be,” Nick Jones, co-founder and chief executive of digital assets firm Zumo, told me.

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

“Winnings from gambling are generally tax free . . . HMRC has sought to educate investors that crypto assets are not tax free, and this may create uncertainty as to whether this position is still correct.” 

Earlier this year, the Treasury confirmed that from 2024-25, self-assessment tax return forms would feature a standalone section for individuals and trusts which had disposed of crypto assets.

It’s important to remember that this is only a committee report and not government policy. Still, political winds and governments change, and calls to treat crypto as gambling may one day land on a government far less enthusiastic about digital assets.

“Look, the current government will most likely not change the policy course, however it is obliged to respond, but that doesn’t mean an incoming government won’t change their view and that’s very damaging for the work the industry is trying to do to establish itself in the UK,” Taylor said.

The committee’s conclusion raises one question, though: what should we consider crypto as, if the industry’s traditional selling points have failed?

Bitcoin has routinely been pitched as a hedge against inflation, but it lost more than 70 per cent of its value in last year’s crash and is yet to meaningfully recover; decentralised finance and NFTs were meant to unlock mainstream attention but trading has been flat for months; the argument that it was a ‘haven asset’ as US regional banks wobbled looks overdone as the crisis eases; advocates argue cryptocurrencies act as an emancipating 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 needs a story to sell, and the onus is on the industry to tell us what that story should be.

What’s your take on the committee’s call to push crypto into the gambling world? As always, email me at [email protected]. 

Weekly highlights 

• While the UK wrestles with its latest scheme to undermine project crypto hub, America’s crackdown on digital assets is pushing companies, money and trading offshore. Nasdaq-listed Coinbase and Gemini have stepped up plans to launch marketplaces outside the US, while offshore stablecoin provider Tether has seen its share of the market rise by a fifth since January. Check out my story here.

• Alameda Research — FTX’s sister trading firm — is seeking to claw back hundreds of millions of dollars paid to individuals and firms including a venture capital vehicle owned by former UK chancellor George Osborne. Check out my colleague Mark Vandevelde’s story here.

• Binance announced on Thursday it was no longer able to facilitate Australian dollar deposits for users due to “a decision made by our third-party payment service provider.” This is not the first time Binance has encountered payment issues with fiat currencies: earlier this year it announced the suspension of US dollar transfers without providing a reason for the decision. The industry behemoth has also ran into issues in the UK, when Paysafe, which provided deposit and withdrawal services to the exchange, ended its services.

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

Soundbite of the week: the DOJ doesn’t care about ‘too big to fail’ crypto firms

It should come as no surprise by now that the US has taken a zero-tolerance approach to perceived bad behaviour in the crypto sphere.

So much so that the industry has shared concerns that a greater crackdown on companies of systemic importance would deal a potentially fatal blow to the market.

Eun Young Choi, director of the Justice Department’s national cryptocurrency enforcement team, told my colleague Stefania Palma that the DoJ doesn’t share the same concerns.

If a company “has amassed a significant market share in part because they’re [flouting] US criminal law”, the DoJ cannot “be in a position where we give someone a pass because they’re saying ‘well, now we’ve grown too big to fail’”. 

Data mining: the amount of Circle’s USDC token is dwindling on exchanges

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

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

Why the drop off in use of USDC? In March Circle had more than $3bn deposited at crypto-friendly Silicon Valley Bank. The uncertainty over its future briefly caused the stablecoin to lose its peg to the dollar.

Cryptofinance is edited by Philip Stafford. Please send any thoughts and feedback to [email protected].