Crypto gambling stole headlines again at the end of last month after a Financial Times article cited Yield Sec figures revealing that wagering via cryptocurrency has seen a fivefold increase since 2022, generating $81.4bn (£61bn) in gross gaming revenue (GGR) last year.
By contrast, global online GGR from traditionally licensed online casinos is estimated to have been somewhere between $78.66bn and $95.5bn last year, with Europe contributing around 40% of the global total at €47.9bn.
On the basis of those figures, it’s clear that a shadow industry has emerged, similar in scale, but currently operating on the fringes of regulation at best and deep in the black market at worst.
This may or may not come as a surprise. Crypto is not new and its suitability for applications to the gambling industry was evident from the outset, yet this shadow market seems to have been allowed to blossom relatively unchecked.
And it has happened fast. In the FT article, Yield Sec founder Ismail Vali characterised the growth of the crypto gambling market as “explosive” and we have no reason to assume it’s about to plateau now.
The lack of regulation in this area is, of course, a massive factor in its explosive growth trajectory. That, coupled with its anonymity and ease of use across borders, make it super appealing to a vast swathe of gamblers. For some, its ongoing reputation as a somewhat illicit shadow economy is no doubt also a draw.
On the other hand, influential individuals, such as President Donald Trump and Elon Musk, openly advocating for crypto – whether their own and more established currencies – has added a level of credibility among crypto enthusiasts that may briefly have been lost during the high-profile crashes of crypto exchanges such as FTX, BlockFi, and Genesis Global Capital in late 2022.
Bitcoin jumped to $97,000 on Wednesday morning amid talks of a US/China trade deal, significantly higher than the $68,789 peak it hit on November 10, 2021, around a year before the FTX crash led it to plummet to $15,900. Since then, it has seen an astonishing resurgence, hitting a new peak of $109,026 on 20 January this year.
What does all of this tell us? Crypto has not been a fad, it has not failed due to lack of utility, and has not vanished after a few bad actors bought the house of cards tumbling down in 2022.
For crypto casinos to come under the fold of regulation – and there are some that would seek to do so, while many others certainly wouldn’t – we need to find ways to apply regulatory conditions to the crypto world. It feels increasingly like a technology gap, rather than a gap of wills.
Crypto gambling is not currently explicitly illegal in the UK, but the Gambling Commission hasn’t yet been able to approve crypto gambling, as no operator has been able to demonstrate compliance with the regulator’s anti-money laundering (AML) and know-your-customer (KYC) obligations.
In Europe, the new Markets in Crypto-Assets (MiCA) regulation seeks to homogenise the approach to crypto regulation across all member states and could create a regulatory blueprint for other jurisdictions in future. If the regulation functions in a way that provides reassurance on the use of crypto, it may ease the way for greater inclusion of crypto in licensed casinos going forward.
This may mean limitations on the cryptocurrencies uses, for instance the European regulators have highlighted the widely used stablecoin, Tether (USDT), as non-compliant under MiCA, due to its lack of transparency, insufficient reserve transparency, and the fact it is issued by an organisation based outside of the EU.
While MiCA doesn’t create a direct pathway to legalised crypto gambling in the UK or Europe, it is building some clarity around how crypto could be regulated. What it doesn’t do is address the vast amount of data monitoring required for casinos to sufficiently meet the AML and KYC requirements of existing regulation.
Crypto advocates would argue that all the information is there on the blockchain and that there is actually greater transparency in crypto than in fiat-currency transactions. However, having the capability to access and use all that data is another matter.
For unregulated casinos, that’s not an issue and for now, they’ll continue to multiply in the shadows. But for those that want to operate inside the world’s biggest regulated markets, finding a way to harness blockchain data and use it to reassure regulators may be the only way to bring these two parallel markets together.
