'Wild West' of cryptocurrencies such as bitcoin must be regulated, says Treasury Committee

Consumers need protection from 'litany' of risks including wildly volatile prices, scams and hacking, MPs' report finds

The “Wild West” of crypto-assets such as bitcoin should be regulated to protect consumers from volatile prices and hacking, an influential group of MPs has said.

The Treasury Select Committee said it "strongly" believes the government must introduce new laws to crack down on digital currencies.

The sale of most cryptocurrencies through Initial Coin Offerings (ICOs) is not currently regulated and investors are afforded very little protection from a “litany” of risks, the committee said in a new report.

Unlike with most mainstream investments, there are no formal mechanisms for redress or compensation when consumers fall victim to cryptocurrency scams.

Although there are voluntary schemes in operation, they are “clearly insufficient” as some firms ignore them, the committee said.

It recommends that, at a minimum, regulation should address consumer protection and anti-money laundering (AML).

Crypto-assets have surged in popularity over the last twelve months after soaring values caused a rush of interest from retail investors looking for big returns.

But regulators have warned that digital currencies such as bitcoin and ethereum are highly volatile, while some critics have said they are essentially worthless.

The Treasury Committee says the government and regulators should decide whether they think crypto-assets should be encouraged. If they decide they should be, the UK could become a global centre for the technology, but only with the right regulation, MPs said.

The committee noted that no cryptocurrency currently performs the three fundamental functions of a currency as a medium of exchange, a store of value, and a unit of account.

Instead, they tend to be used as a vehicle for speculation and therefore, “well-functioning cryptocurrencies exist only as a theoretical concept”.

This speculation means investors are exposed to large potential gains, but correspondingly a greater risk of loss which they may not be aware of, partly thanks to misleading adverts from some platforms.

Several crypto-exchanges have been hacked, with customers losing all of the assets in their accounts while other sites have blocked people from accessing their accounts after they lose their password.

Nicky Morgan, chair of the Treasury Committee, said: “Bitcoin and other crypto-assets exist in the Wild West industry of crypto-assets. This unregulated industry leaves investors facing numerous risks.

“Given the high price volatility, the hacking vulnerability of exchanges and the potential role in money laundering, the Treasury Committee strongly believes that regulation should be introduced.

“It’s unsustainable for the Government and regulators to bumble along issuing feeble warnings to potential investors, yet refrain from acting.

“At a minimum, regulation should address consumer protection and anti-money laundering. If the Government decides that crypto-asset growth should be encouraged, appropriate and proportionate regulation could see the UK become a global centre for this activity.”