Tottenham Report: Crypto, the metaverse, and other regulatory frontiers

Tottenham Report: Crypto, the metaverse, and other regulatory frontiers

  • Hannah Gannagé-Stewart, CDC Gaming Reports
June 2, 2022 2:00 AM
  • Hannah Gannagé-Stewart, CDC Gaming Reports

Web 3.0 (also referred to as Web3) is the latest iteration of the World Wide Web, based on blockchain technology and incorporating concepts such as decentralization, crypto, NFTs, and the metaverse. 

Just as Web 2.0 came to characterise the internet we now take for granted, comprising social media, user-generated content, apps, and data monetization, so Web 3.0 stands at the precipice of becoming unavoidably mainstream. 

The ability of the internet to slide previously unthinkable new paradigms into everyday life right under our noses, while unnerving, is fairly familiar by this point, so it’s surprising how one-dimensional the debate around crypto gambling has been in European jurisdictions over recent months. 

May has been a bad month for crypto enthusiasts. While metaverse developers and NFT creatives are quietly sculpting the new online normal, the crypto markets have crashed, noisily.  

Bitcoin, the cryptocurrency that by now all of us should have heard of, dropped below $30,000 for the first time since July 2021, half of what it was worth at its November 2021 peak. Meanwhile, fledgling stablecoin TerraUSD, and its crypto counterpart LUNA, dropped below their $1 pegging, unseating them as ‘stablecoins’ and causing investors to lose faith and pull out en masse. The crypto markets as a whole shed $600 billion in a single week. 

Unsurprisingly, the wall-to-wall media coverage of crypto investors becoming suicidal after losing their life savings put financial regulators across the globe on edge. They seemed to feel both vindicated over their cynicism toward crypto and fearful that they’re taking too long to grasp this new economic phenomenon. 

U.S. Securities and Exchange Commission Commissioner Hester Pierce felt moved to admit that her organisation had “dropped the regulatory ball”, when speaking to CNBC at the DC Blockchain Summit last week, while the outgoing chair of the Financial Conduct Authority Charles Randall made a speech in which he recalled a visit to teenage school children in London, who, he said, “acknowledged that crypto was like gambling”. It’s not entirely clear why he chose such an inappropriate focus group. 

“Some of them had also been convinced by the internet that they could predict price movements and make money from them. They were very able students, but the hope of getting rich was stronger than any facts or rational arguments I could give them”, he said, going on to call for a “well-functioning partnership between government, Parliament, and regulators” to address the emerging challenge of crypto. 

“Like gambling” is a vague characterisation that can be applied to literally anything carrying a level of risk. Many commentators applied similar comparisons to Wall Street in 2008. As such, it is probably unhelpful in finding a pragmatic solution to regulating a financial system designed never to be regulated. Starting from a position of prejudice is one reason that regulation has made so little progress: Crypto is the hot potato for which no regulator wants responsibility. 

Last week, vociferous safer-gambling campaigner Matt Zarb-Cousin jumped on the bandwagon, having picked up on reports that those hit hardest by the recent crypto crash had turned to gambling helplines for solace. Perhaps unsurprisingly, some reported having previously struggled with gambling addictions and were self-excluded from gambling sites. 

“The Financial Conduct Authority needs to get to grips with what counts as investing and what counts as speculating, and it’s incumbent on regulators to provide adequate information to consumers about the risks of crypto and leveraged trading”, he argued. 

He’s not wrong, of course, but meanwhile, crypto casinos are innovating in a space which fits hand in glove with this new, allegedly dangerous, technology. Admittedly, crypto gambling is largely banned from U.S. and UK regulated shores, but its influence on the evolution of the industry will be unavoidable. 

Igaming supplier SoftSwiss analysed the growing presence of crypto in the industry in its Q1 report. The corporate report claimed that the sum of bets in digital coins in the first quarter of 2022 had more than doubled compared to the same period in the previous year.  

COO Andrey Starovoitov remarked at the time, “The stronger regulation of traditional casinos will definitely attract new operators to the crypto gambling niche. In the next couple of years, we will see active growth in this market segment, as most current leaders will join the niche. … However, new needs are already emerging. For instance, using NFTs to gamify the player experience and build a community of like-minded people around the online casinos.” 

The UK’s Gambling Act Review is still winding through the hallowed halls of Westminster, delayed by the more publicly captivating, and politically perilous, ‘partygate’ review of almost 20 parties now confirmed to have taken place at Number 10 during the UK’s various COVID-19 lockdowns. 

A gambling review White Paper is, we are repeatedly told, being finalised. But beyond some scaremongering on the obvious harms of speculating on volatile currencies, the nuances of Web 3.0 seem to have been ominously overlooked.  

Can we hope to see recommendations for the use of blockchain as a means to verify players and source of funds? Maybe. Will there be a pragmatic analysis of the likely digital landscape to come and what that means for gambling regulation? Not if what we’ve heard thus far is any indication of the depth of debate.