Lenders are likely to look even more unfavourably towards cryptocurrency assets — after MPs called for these assets to be treated as a form of ‘gambling’ rather than retail assets.
The calls came from MPs on the influential Treasury Select Committee, although the Treasury has indicated that it is not planning to introduce these changes at present.
Private Finance technical director Chris Sykes says that these calls will cause additional caution with lenders. “Most lenders haven’t looked favourably on crypto for a while now, and if investing in cryptocurrencies is soon going to be classified as gambling then this will make the problem worse.”
He pointed out that cryptocurrencies, such as Bitcoin, can be held without a bank account, so there are not the usual verifications in place. “Lenders are wary of using it for a source of deposit due to the unclear anti-money laundering tracers surrounding these assets,” he said.
As the price of Bitcoin and other crypto currencies rose in 2021 there was an increase in the number of people investing in these assets, particularly among younger investors. The TSC report estimates that around one in 10 people in the UK now hold crypto assets, which can include NFTs (non-fungible tokens) sold by various organisations, such as football clubs, as well as currencies like Bitcoin.
There have been moves to introduce greater regulation of this asset class. In February, the government asked people to comment on proposals for the financial regulation of crypto assets.
But the TSC said the plans to regulate cryptocurrencies as a financial services product would create a false impression that they were as secure as traditional investments. It said this “halo effect… leads consumers to believe that this activity is safer than it is, or protected when it is not”.
This reputation of this asset class has not been helped by the recent collapse of FTX, one of the largest crypto-currency brokers, whose founder is now facing criminal charges in the US.
Skyes adds: “During early 2021 and the fast rise in value for Bitcoin, it appeared there was a glimmer of hope that more lenders were going to accept Bitcoin, once sold to pounds of course, and potentially other crypto assets.” However he says the comment in this report makes this look increasingly unlikely.
If these investments are treated as ‘gambling’ this could adverse an individual’s credit score, which could negative impact on potential mortgage borrowers.
