The driving force of fintech and our increasingly cashless society has been making payments easier, faster, everywhere. Startup founders would frequently say their ambition is to make sending money as easy as sending an e-mail — wrapped in the language of “democratizing” finance.
The hitch is that the ability to pay at the touch of a button has also fueled the worst excesses of speculative day trading and gambling-like behavior, from crypto to meme stocks, with 24/7 trading apps’ enticing layouts and loud promotional campaigns by paid influencers making it all as fun and addictive as a game of Candy Crush. “What’s new about this is the one-click endorphin loop,” says Charles Randell, former chairman of the UK Financial Conduct Authority, who says that trading apps are exploiting the gap between consumers’ financial capability and financial literacy.
With addiction centers filling up and problem-gambler hotlines ringing off the hook amid a broader normalization of sports betting, and with an estimated 78 percent of authorized fraud cases originating online, it is time to consider whether that “Pay Now” button is a speed ramp that needs some guardrails. That is what some regulators are preparing to do, indirectly, by rolling out new rules requiring a “cooling off” period for certain crypto trades. It is an idea worth testing.
From Oct. 8, first-time crypto buyers in the UK are to be offered a 24-hour delay between starting a purchase and completing it, as part of proposed tougher crypto advertising rules that also ban referral bonuses. And the EU’s flagship crypto rules, due to come into force next year, also include a 14-day “right of withdrawal” (similar to existing rules for other online purchases) for consumers who buy tokens that are not backed by specific assets or currencies.
A cool-down period to allow time to stop, think and potentially undo a crypto bet is reminiscent of responsible gambling tools used everywhere from Britain to Australia, and suggests regulators are serious about looking beyond the usual financial toolkit when it comes to crypto’s myriad risks. Despite the sector’s mantra of “do your own research,” consumer pressure to trade is clearly driven more by FOMO — word of mouth, social media and the loop of rising prices — than by any real analysis. Think of Elon Musk’s dogecoin tweets, or frothy six-figure bitcoin price targets. A Bank for International Settlements paper recently estimated about three-quarters of retail investors around the world lost money on bitcoin between 2015 to 2022.
Even if a day of quiet contemplation for a first-time user would not stop the tide of the crypto-desperate — a tide that has admittedly been weakened by the reality of brutal market correction — it could make a difference to the most vulnerable. One 2022 study surveying the impact of 60-minute play breaks on British online gamblers found that it appeared to prevent overspending: 41 percent of players stopped depositing money and 45 percent stopped betting for the rest of the day. The authors warned this did not seem to change behavior over a longer period, though.
And it could be the start of a much-needed ramp-up in oversight when it comes to digital finance’s blurring of the boundary between gambling and investing. Regulators are increasingly looking to the likes of Alphabet Inc or Microsoft Corp to help clamp down on the promotion of unauthorized financial firms.
There would doubtless be some pushback from industry players when these rules start to get rolled out, as seen in other products with cool-offs like peer-to-peer lending, but the real risk is mounting resistance from politicians. Tougher proposed crypto regulation in the UK has already clashed with British Prime Minister Rishi Sunak’s ambitions to make London a crypto hub, mirroring French President Emmanuel Macron’s Parisian push, and there seems to be little government interest in the idea of regulating consumer trading of digital assets as a form of gambling. Downing Street also seems keen to cut back on rules that the UK once championed — such as unbundling research from trading. Could the crypto bros find more allies in government circles against regulatory red tape? Do not bet against it.
Lionel Laurent is a Bloomberg Opinion columnist covering digital currencies, the EU and France. Previously, he was a reporter for Reuters and Forbes. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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