UK Crypto Gambling

UK makes crypto tax-free by calling it gambling

The UK wants to be a global blockchain hub but then stated crypto has no value and should be regulated like gambling which makes it tax free. That's insane. This stance is full of hypocrisy and contradictions.

The UK Treasury issued a report in May 2023 called "Regulating Crypto." The report essentially concluded 3 things:

1. Crypto is unbacked
2. Crypto has NO intrinsic value
3. Crypto is more like gambling than finance

The report cites bitcoin (BTC) and ether (ETH) as examples of “unbacked crypto assets,” which basically means all crypto assets are unbacked since BTC and ETH comprise roughly 60% of total crypto market cap.

In this video I challenge the logic of treating crypto like gambling

The #1 unbacked asset

UK Treasury forgot to mention one of the greatest unbacked assets of all time, the British pound and its best friend the US dollar. None of the 190 or so central bank fiat currencies use the gold standard so 100% of all fiat currency is unbacked with no intrinsic value.

If you think the full faith and credit of a government creates intrinsic value, then more power to ya. Governments just print money at will to solve all economic problems, devaluing their beloved fiat in the process.

In the meantime, central banks are going to secretly fill their coffers with BTC and ETH. Ironically their unbacked fiat currency will become indirectly backed by bitcoin.

Halo effect?

“We are concerned that regulating retail trading and investment activity in unbacked crypto assets as a financial service will create a ‘halo’ effect that leads consumers to believe that this activity is safer than it is, or protected when it is not,” Parliament’s Treasury Committee.

What are you talking about? Any securities registrations with government agencies are about full disclosure and never about endorsement. If crypto regulated as a financial asset would be a halo endorsement, then every other regulated financial asset would be an endorsement using that logic. UK Treasury is saying they endorse all registered securities and other offerings. That is nonsense they don’t endorse anything.

Even after full disclosure every investment and every consumer purchase is always buyer beware. It always has been and always will be. Caveat emptor.

CryptoUK

The crypto advocacy group CryptoUK said, “Furthermore, gambling is exempt from capital gains tax. Does the Government really wish to exclude tens of millions of pounds in tax income from gains made by the buying and selling of unbacked crypto assets?”

Maybe the UK should treat crypto as gambling if all the gains are tax free and investors still have access to the same apps and exchanges then This would be the best scenario anywhere in the world if you are a UK tax resident.

Same risk

The report goes on this say, "We therefore strongly recommend that the Government regulates retail trading and investment activity in unbacked cryptoassets as gambling rather than as a financial service, consistent with its stated principle of ‘same risk, same regulatory outcome’," the report said.

The takeaway seems to be:

Unbacked assets = gambling

British pound = unbacked asset

British pound = gambling

Using the “same risk, same regulatory outcome” principle, the British pound should be treated as gambling along with crypto assets. I think Spock would come to the same conclusion here.

The committee went on to say crypto’s inherent price volatility is a catalyst for “substantial gains or losses, while serving no useful social purpose.” MOPs and UK Treasury staff are going to embarrass themselves. Anyone who spouts off nonsense that crypto and blockchain is not useful and serves no social purpose has never read a single article and attempted to educate themselves on the technology.

The 3 elements of gambling

Gambling consists of three elements:

1. Consideration
2. Prize
3. Chance

“If any one of those three elements is missing, the game is simply not gambling” (Rose, 1986). Every investment requires consideration whether securities or crypto so the consideration test is met. Otherwise betting on a horse race or the spin of a roulette wheel involves a final outcome. There is a probability of winning, the chance, and a prize for the winning bet. There is no crypto event to win and therefore no chance and no prize.

People put money into investments which go up and down like all investments. Then investors decide when to take a profit or loss which can be at any point in time. The chance and prize elements fail every time with crypto the same as securities, commodities, etc.

UK Treasury, which is it?

If you want to be the global blockchain leader, then be consistent with the logic and review the gambling test before making conclusions. Contradictory gambling treatment and tax-frees gains could be a windfall for UK crypto taxpayers.

Key Takeaway

Beware of those unbacked assets with no intrinsic value like the British pound and US dollar.

And remember, 

Your goal is always to get a Crypto Bullseye™.

Yours in Crypto, 

Kirk David Phillips, CPA, CMA, CFE, CBP