By Bitcoms
What the Treasury Committee has recommended
Looking at “unbacked ‘cryptocurrencies’ such as Bitcoin and Ether that we do not consider to have any intrinsic value”, the Treasury Committee has recommended that “the Government regulates retail trading and investment activity in unbacked cryptoassets as gambling rather than as a financial service”.
Our response
As we laid out in our recent response to HM Treasury’s consultation request, as a starting point for considering how to regulate “cryptoassets”, they should properly be divided into (i) Bitcoin and (ii) all other cryptoassets.
Having failed to draw such a distinction, the Treasury Committee is out of step with major financial regulators such as in the US, where the Chair of the Security and Exchange Commission has affirmed Bitcoin (and only Bitcoin) is a monetary commodity. It is unclear how the United States will eventually categorise other cryptocurrencies, but the messaging to date has been consistent - that only Bitcoin can definitively be recognised as a digital commodity. We would go further and define Bitcoin as ‘digital commodity money’, but are broadly supportive of this definition.
The Treasury Committee has also failed to recognise financial market realities pertaining to Bitcoin. For example, it is already offered as a financial investment by two of the three largest global investment management firms, Blackrock and Fidelity, with the latter laying out in detail “why investors need to consider Bitcoin separately from other digital assets”.
Running since 2009 with 99.9% uptime in the face of continuous attacks (both in the cyber and in the political realm), Bitcoin is the first successful global digital currency, and today by far the largest with the strongest network effects. It is also the only one which is credibly neutral and fair: globally distributed and not controlled by any authority or small group, its transparent governance rules cannot be arbitrarily or easily changed. Bitcoin has also become the most reliable and secure large computer network in history: in the past decade, it has not been down for even a fraction of a second and, despite containing hundreds of billions of pounds in value, has suffered no successful hack.
Bitcoin stands in sharp contrast to other ‘cryptos’ which exhibit flaws detrimental to retail investors, such as limited network effect, centralised control, favourable treatment of insiders, and no fixed or clearly defined monetary policy. Worse, according to data analytics firm Chainalysis, “more than 1.1 million tokens were launched last year,” but “24% of new tokens launched in 2022 bear on-chain characteristics of pump and dump schemes”. Against this backdrop, we applaud the Committee’s reluctance to create “a ‘halo’ effect that leads consumers to believe that this activity is safer than it is, or protected when it is not”.
However, as we have outlined above, Bitcoin is not ‘crypto’ and should be subject to its own separate treatment. We therefore urge the Treasury Committee to revisit its recommendation, and recognise that retail trading and investment activity in Bitcoin should be regulated as a bona fide financial asset.