As the old adage goes, taxes are the price we pay for civilisation. Thus it should be no surprise that, throughout much of history, the burden of taxation has fallen hardest on activities considered less socially desirable than others, less ‘civilised’ as it were.

Duties on alcohol and cigarettes come to mind. In the US, where religion plays a more dominant role in politics than in most of Europe, such levies are commonly referred to as ‘sin taxes’.

Given humans’ unique combination of creativity and individualism, there are places that have built a business out of embracing what might be considered by some to be ‘sinful’ behaviour. Historically, such locations imposed little if any taxes on activities considered unacceptable in polite society.

Consider the old Hanseatic port cities for example. Remnants of their old sailors’ taverns and bordellos lay scattered around the Baltic Sea. Today, some are major tourist destinations due to a combination of their bawdry history and, in some cases, trendy clubs and other locales.

Amsterdam and Hamburg are perhaps the best known. There are other, sleepier such places. But they all share a common history as ‘free’ cities that were largely independent of whatever tax and regulatory policies existed in the countries surrounding them. They still imposed taxes—berthing fees for example—but as ports competed with other ports, they wanted to make themselves attractive places for itinerant traders to do business.

Following days or weeks at sea, sailors naturally wanted to enjoy a day or night of shore leave. And they frequently earned the money to do so along the way. Once back on board, the opportunity to pay for a day or night of debauchery would have gone. Hence the saying ‘Spend like a sailor’.

Not only port cities have followed this sort of business model. Take Las Vegas as a modern example of a city that for decades prided itself on being a virtual oasis for all manner of ‘sinful’ activity, including gambling.

During the 1980s, when the US took a culturally conservative turn, Vegas began to rebrand itself somewhat as a place for business conventions and family holidays. Arguably it succeeded. But the old Vegas downtown is still there, a legacy of the old Sin City, as Las Vegas was once colloquially known.

Gambling, illegal in much of the world, is arguably as old as civilisation itself. Many ancient games are practically designed as gambling pastimes. Take backgammon for example. What use is there for the doubling cube other than to raise the stakes when advantageous?

But taxing gambling is notoriously difficult. Alcohol prohibition was challenging, but given that brewing, distilling and distributing booze required substantial infrastructure to do at profitable scale, it was costly but doable.

Not so with gambling. Anyone with a pack of cards or a pair of dice could organise and host a game. An entrepreneurial fellow could offer up their lounge one night to host a game of poker, in exchange for a small fee. (A more entrepreneurial one would also sell bootleg gin, at a large markup of course. If you were ever curious how the Kennedy family fortune was made, I’ve given you a lead to follow…)

Given the difficulty in taxing gambling, some countries, including the UK, don’t even bother. Gambling is regulated to be sure, with only licensed firms and premises being allowed to host or otherwise facilitate it.

The betting shops, however, are taxed. That’s relatively easy to do. As with all businesses they are required to maintain accounts, which are routinely audited. And so gambling IS taxed in the UK, if only indirectly.

What’s true of the betting shops on the corner is also true of financial spread betting platforms. Their customers might not be taxed on their winnings, but the firms are. They can take customers from around the world, and they bring HMRC much needed revenue by providing their profitable services to financial market ‘gamblers’.

The fact is, whether a tax is on a ‘sinful’ activity or no, governments in need of revenue will find a way to tax it. As former US president Ronald Regan famously quipped, when commenting on governments’ attitude towards tax:

“If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”

It doesn’t really matter whether the activity in question is consider ‘sinful’ or not. The debate within the corridors of government is primarily about not whether to tax, but how.

Imagine for a moment that a new form of gambling arises spontaneously. Some clever young people invent a new game, powered by a new technology. This game is so cutting-edge, so cool and trendy, that over the course of a few years it captures the Zeitgeist, drawing in participants from all demographics and from all over the world.

Eventually, the government would take notice, no? Indeed they would. Hence it should be no surprise whatsoever that, just this past week, it was suggested in Parliament that bitcoin and other cryptocurrency trading should be regulated as a gambling activity.

By implication, firms providing crypto trading platforms should thus also be taxed, just as the spread betting shops are.

Of course, they argue, regulating crypto trading would be for our own good:

“Unbacked” crypto assets – typically cryptocurrencies with no fixed value – expose consumers to the potential for substantial gains or losses, while serving no useful social purpose”.

But wait. Inflation is running at around 10%, far above the Bank of England’s target. What if people are buying crypto as an alternative store of value, given that the Bank has so badly missed its target it has damaged its credibility? Is that gambling? Or is that just a rational response by any sane person or household trying to protect their wealth?

After all, alternative stores of value don’t suddenly become all the rage when a government does a good job maintaining the purchasing power of its currency. It is when currency stability comes into play that the game—call it gambling if you prefer—gets going.

Nice trick, isn’t it: inflate and devalue your currency, and you tax everything, all at once. It doesn’t really matter whether people purchase crypto, or shares, or foreign currencies, or fine art, or whatever.

As long as the currency in which goods are services are denominated is being inflated and devalued, the tax man will grab his share, IF he can regulate that market and tax the profits of the exchanges, auction houses, and service providers. Crypto is but the new kid on the blockchain, as it were.

The old kid, meanwhile, remains. Gold has been a store of value par excellence since the dawn of recorded history. Now may in fact be a particularly good time to consider increasing one’s allocation to the metal. My colleague, Eoin Treacy, agrees, and he has some fresh, specific thoughts on how best to build an allocation. He’s presenting a special update this week, for which you can sign up to view here.

Until next time,

John Butler
Investment Director, Fortune & Freedom