Igaming Focus: Crypto regulation and further gaming integration on the cards By Jake Pollard, CDC Gaming Reports February 8, 2022 at 10:00 am Regulation of crypto assets is increasingly likely and won’t affect ties with the online betting and gaming industry. The increased potential for regulation of crypto assets is much discussed, and with the UK government’s recent announcement that it plans to introduce legislation “to address misleading crypto asset promotions” to bring them “into line with other financial advertising”, it seems only a matter of time before new rules are drawn up for that market. The U.S. is also heading in the same direction, with new provisions on crypto assets and NFTs included in the Build Back Better Act and new tax reporting provisions applied to digital assets in the infrastructure bill that was signed into law in November. The level of coverage that digital assets, cryptocurrency trading, crypto-funded gambling, NFTs or fan tokens have received has also been increasing — and much of it has been negative. Bad press The reasons for the bad press are simple: an unregulated and hard to decipher digital space is teeming with huge financial numbers, and critics say consumers are buying and selling the currencies without understanding the financial risks they are running; while also not being protected by any consumer rights legislation should they fall victim to scams or fraudsters. In the online betting and gaming space one of the key worries is that crypto currencies, which allow users to remain anonymous, are used to launder money and ill-gotten gains. In addition, crypto-funded gambling websites are an easy way for unregulated operators to offer online sports and casino products, whether in the U.S., Asia or elsewhere. One industry contact told CDC: “It’s the easiest way for operators to process payments and players are comfortable with the fact that they can remain anonymous.” But Tim Heath, an early Bitcoin adopter and partner at Yolo Investments, says that in terms of of statistics and data, “the intelligence available on the blockchain about player spending habits, crypto assets and source of wealth or income as well as share of wallet is transparent, if you know how to look for it.” High value Heath adds that “the lifetime value of crypto players is 3-5x that of a fiat player” and the situation is not helped by the fact that ‘traditional’ operators have major gaps when it comes to understanding the space. “They still think crypto will ‘go away’”, he says. As a way to address this, those operators should “think about and understand the crypto community and then offer it a place where it can bet with the most convenient digital asset.” These gambling industry trends are happening at the same time as the biggest crypto exchanges — think FTX, Crypto.com (complete with its Matt Damon-fronted advert), OpenSea or Binance — are hitting valuations and attracting investments worth billions of dollars. To get an idea of the value of the biggest cryptocurrencies, the respective market capitalizations of the Bitcoin and Ether currencies at the end of January were $690bn and $290bn. The reasons for the head-spinning valuations are that they are well established, highly liquid currencies with a large user base and have been around for longer than most other currencies. But despite such strong stats for Bitcoin and Ether, those who disapprove of the crypto industry believe that trading in the currencies is equivalent to gambling: in that many consumers buy them without understanding the risks they are running. The recent fall and rise in the value of Bitcoin is an illustration of this point. Mainstream acceptance In some ways, whether financial regulation of cryptocurrencies is likely further down the line (it is) isn’t really the point. The reason regulators are paying close attention to crypto products is because they are part of the mainstream and can no longer be ignored. Quite simply, so many people either own or are trading cryptocurrencies (crypto exchange Coinbase says it has more than 70 million wallets on its platform) that banning them or making their value drop in any significant way would leave many users out of pocket. It also wouldn’t stop millions of them from acquiring and trading cryptocurrencies and using them on gambling websites, as they already do, and in much the same way that people never stopped betting on sports or online casino despite both being illegal in so many U.S. jurisdictions until recently. Crypto and online gambling When we look at crypto’s relations with online gambling, the industry has been one of the earliest adopters of cryptocurrencies, with Bitcoin sportsbooks and casinos quickly appearing in the mid-2010s shortly after the currency burst onto the scene. They have since flourished and are now an established and important sub-segment of the industry. None of the crypto gambling operators are listed or publish their results so it’s impossible to know how they have performed, but industry sources have told this reporter that the biggest crypto gambling brands’ revenues compare favorably with some of the most well-known brands in the business, which gives an idea of their scale. In addition, the arrival of the biggest crypto exchanges such as FTX, Binance and Crypto.com as either acquirers or major investors in the corporate structures of U.S. online sportsbooks is bringing the ‘mainstream’ crypto world ever closer to mainstream sports and betting. The fact that the exchanges are either sponsoring or acquiring naming rights to sports stadiums is also not surprising. Sports and betting are much more socially acceptable gambling pastimes than casino and top level sports remain one of the best ways to gain exposure and credibility. The questions raised by cryptocurrencies and blockchain — around anonymity, whether trading in them is akin to gambling for inexperienced users, the business models upon which NFTs or fan tokens are based, or what those digital products actually are — are bound to continue for many more months. In the end, though, it will be fascinating to see what happens to the value of cryptocurrencies if or when they are regulated, and how they will interact with ‘mainstream’ gambling brands.