Cryptocurrencies such as bitcoin and Ethereum should be regulated as gambling, according to a committee of lawmakers in the United Kingdom who claimed that the assets “pose significant risks to consumers.”

The U.K. Treasury Select Committee released a report on Wednesday noting that tokens such as bitcoin are unbacked by any assets and therefore have “no intrinsic value” and “price volatility exposes consumers to the potential for substantial gains or losses.”

“These characteristics more closely resemble gambling than a financial service, an impression reinforced by the evidence we have received of consumer behaviour,” the lawmakers wrote in the report. “We are concerned that regulating retail trading and investment activity in unbacked cryptoassets as a financial service will create a ‘halo’ effect that leads consumers to believe that this activity is safer than it is, or protected when it is not.”

U.K. lawmakers have been working to regulate cryptoassets in order to bring them under a more “robust” framework by planning its first rules for cryptocurrencies. Current laws only cover anti-money-laundering regulations, but the new rules would bring in regulations regarding trading platforms, market abuse, lending and tokens.

“The events of 2022 have highlighted the risks posed to consumers by the cryptoasset industry, large parts of which remain a Wild West,” said Harriett Baldwin MP, chair of the Treasury Committee. “Effective regulation is clearly needed to protect consumers from harm, as well as to support productive innovation in the U.K.’s financial services industry.”

During 2022, multiple dramatic cryptocurrency market collapses happened including the crash of the TerraUSD so-called “algorithmic” stablecoin in May and the bankruptcy of FTX Trading Ltd. in November. Both events threw cryptocurrency markets into turmoil and caused knock-on effects throughout the entire crypto industry with more bankruptcies throughout the year.

According to the U.K.’s tax and customs authority, around 10% of all adults in the country either hold or have held cryptoassets.

On Tuesday, the European Union voted in favor of the highly-anticipated Markets in Crypto-Assets regulation, a bill to regulate the crypto industry among member states. The legislation sets regulatory guidelines for using cryptocurrencies and services across the EU and covers digital assets, utility tokens and stablecoins. It’s expected to become law midway through 2024.

The industry lobby group CryptoUK strongly disagreed with the report equating the cryptocurrency markets with gambling.

“We are both concerned and disappointed by these claims which are unhelpful, false, fundamentally flawed and unsubstantiated,” said Ian Taylor, board advisor at CryptoUK. Taylor noted that professional investment managers see bitcoin and other cryptoassets as alternative investments and not a form of gambling. “The statement fails to reflect the true nature, purpose and potential of the crypto industry.”

The report also acknowledged that there are convincing use cases for cryptocurrencies, such as reducing the costs of payments and for cross-border payments.

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