“The game never ends when your whole world depends on the turn of a friendly card,” the prog rock group Alan Parsons Project once sang. Today’s equivalent is the price of a frenemy cryptocurrency.

Digital tokens offer gambling highs 24/7, as gullible punters bet big on volatile coins that enrich exchanges, ruin lives and abet crimes. The question is: should regulators make the crapshoot connection official?

A panel of UK lawmakers has suggested regulating retail crypto trading as if it were actual gambling, rather than an extension of financial services. While gambling parallels go back to the earliest days of bitcoin and even its forebears, last year’s market meltdown and the collapse of derivatives exchange FTX — helmed by brash traders specialising in high-stakes bets — have thrust crypto’s disconnect from any of the value drivers associated with stocks, bonds or other regulated securities to the core of the rule-making debate.

It’s an idea that has a lot going for it in theory. Using the language of gambling and vice would rob crypto trading of its sophisticated economic sheen and send banks and pension funds fleeing for the exits — faster even than in the wake of recent regional bank failures with ties to crypto firms. Crypto would be less likely to metastasise into a systemic risk to financial stability, with more obstacles to getting itself embedded in TradFi. The UK panel is keen to steer Rishi Sunak’s government away from a stance that puts attracting investment ahead of consumer safety, saying regulating crypto as a financial service creates a “halo” effect that leads consumers to believe that this activity is safer than it is.

At the consumer protection level, again in theory, gambling-style regulation could also be a boon. Sports teams wouldn’t be able to chase crypto sponsorships as an alternative to advertising for bookmakers. Crypto businesses would have new responsibilities regarding problem and underage gamblers, on top of tax evasion and money laundering. Advertisers might have to publicise estimates that as many as 81% of users piling into bitcoin between 2015 and 2022 lost money. As one recovering crypto addict told the Guardian last year: “Trading is gambling, there’s no doubt about it.”

Regulatory leash

But in practice, relabelling crypto might trade one set of problems for another. The implication is that the US$1.2-trillion crypto industry would find itself on a tighter regulatory leash, but the reality of enforcement tells a different story. The UK’s Gambling Commission, for example, has about 300 employees, or around a tenth the staff of the financial conduct authority — which itself has had its work cut out dealing with everything from exchanges such as Binance to crypto ATMs. The history of gambling regulation in the UK is also littered with regulatory capture and consumer protection failures, even if today it’s making a serious attempt at turning over a new leaf.

Without a ramp-up in regulatory resources to face a world where so much online activity — from e-sports to loot boxes to stock trading — has become gambling-like, the question of labels could quickly become moot. Consider one of the UK’s most recent non-crypto regulatory failures, Football Index, a self-branded soccer “stock market” that collapsed in 2021 and burned hundreds of thousands of customers.

The product was licensed by the Gambling Commission, but behind the scenes there were years of back-and-forth about whether the FCA should be involved. A government-ordered report found the FCA approach seemed to depend on whether it had sufficient resources, rather than jurisdiction. If gambling and finance overseers can’t (or won’t) tell the difference between the two anymore, what hope is there for determining where crypto should sit in the regulatory landscape?

Perhaps what’s needed is a hybrid approach, beefing up and combining regulators. There have been some tentative steps: in France, for example, the national gambling authority has identified some crypto activity that falls under its remit, in the form of NFT trading company Sorare, and issued guidelines for the company even as the EU embarks on a flagship package of crypto rules called MiCA. And in the UK, the Gambling Commission and the FCA have signed a memorandum of understanding on better cooperation and information sharing.