by Dan Moczulski, UK MD of eToro
This week we heard the Treasury Select Committee’s conclusion that investing in crypto is akin to gambling and must be treated as such by the UK government.
Whilst it’s a positive development that crypto is clearly now high on the agenda for policy-makers, this gambling assertion feels flawed and confusing.
Crypto is still a nascent financial asset, and of course this comes with risk and volatility, but investing in crypto is simply not the same as gambling.
A bet, by nature, is on a finite event. Either an event happens or it doesn’t. That is not the case with a crypto investment. The value of coins can go up and down, just as if you were investing in shares, and time will show that there are winners and losers.
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As with any risky, volatile asset, investing in crypto is about doing your research and understanding the level of risk that you are willing to take. It’s also worth remembering that there are thousands of different crypto assets with different attributes and use cases.
Some coins are worth steering clear of and others have proven to be viable, albeit volatile, investments over a period of years. To refer to crypto as gambling as the Treasury has done provides too narrow a view of a growing asset class with a wide spectrum of assets.
The Treasury Committee has to offer more clarity on what it means by ‘treating crypto as gambling’ and how it came to this conclusion.
Crypto can be used to purchase real assets and we are seeing more and more examples of this around the world. It’s being used in Universal Basic Income projects, and it’s being used as a store of wealth by citizens of countries beset by conflict or hyperinflation. In all of these examples, the gambling definition struggles to hold water.
No one can claim that the crypto sector is in perfect working order. Very high profile collapses have exposed weaknesses in the crypto eco-system and rightly led to calls for urgent regulation. But it is unclear to me how simply defining crypto as a gambling product addresses any of the problems the Committee associates with this asset class.
Cash is used by criminals, the value of a stock can fall to zero, world currencies can collapse, but there is no demand to reclassify these asset classes as gambling.
With crypto, we are talking about an alternative asset class which has earned its place in a diversified investment portfolio, and one which is being increasingly invested in, both on a retail and an institutional level around the world.
In the UK, recent surveys indicate that between 5% and 6% of the population hold crypto, equating to several million people. There will be numerous reasons why these people invested their money in this asset class – other than price speculation – and the gambling comparison effectively dismisses them.
To stress this point, in our last Retail Investor Beat, a survey of 10,000 retail investors around the world, we asked those holding crypto about their motivations for investing. Whilst the opportunity to earn high returns was most commonly cited, with 42% selecting this option, it was a close run contest. More than a third (36%) said they believe in the power of blockchain technology whilst 33% see it as a transformative asset class. These people would not recognise their investments as gambling.
It’s reassuring to see that MPs recognise the need to discuss crypto. The focus, however, must be on introducing a sensible crypto regulatory framework, which raises standards, provides more protection for consumers, weeds out bad actors, and encourages innovation.
The UK has an opportunity to be at the forefront of crypto policy. Failing to grasp this opportunity could prove to be the true gamble.