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Deposit Method Standards and Cryptocurrency in Regulated iGaming and Sports Betting Industries

Deposit Method Standards and Cryptocurrency in Regulated iGaming and Sports Betting Industries

June 13, 2022

Deposit Method Standards and Cryptocurrency in Regulated iGaming and Sports Betting Industries

By: Jake Gray

Despite being the most widespread form of non-fiat money, cryptocurrency has struggled to gain traction as a broader means of exchange and payment, including in the internet gaming (“iGaming”) and sports betting industries. While there are no industry-wide standards for acceptable deposit methods, gaming regulators have tended toward two approaches, neither of which explicitly permits the use of cryptocurrency.

Gaming regulators in the United States tend to adopt the first approach: avoidance. In general, U.S. regulators have refrained from including cryptocurrency on the list of acceptable deposit methods, as opposed to forbidding it outright. For the most part, crypto- and virtual currencies simply go unaddressed by state gaming regulators. To illustrate, while New Jersey’s regulations on Internet and mobile gaming make no reference to crypto- or virtual currencies, their approval is still possible. This is so because the regulations allow for an Internet or mobile gaming account to be funded through the use of, among other methods like debit cards and cash deposits at an approved location, “any other means approved by the Division [of Gaming Enforcement].” [1] So far, only one state—Wyoming—has approved cryptocurrency as a funding method for sports wagering accounts in its statutes, which it did when it originally legalized sports betting in 2021. Wyoming features the nation’s most pro-crypto and -blockchain state legislature: It is the first state to have legal cryptocurrency banks, and it is the first state to regulate decentralized autonomous organizations (“DAOs”) and to recognize DAOs as a form of LLC. 

Only two states have leveraged the “any other means approved” provision in their sports betting legislation to adopt cryptocurrency as a deposit method thus far. This June, Virginia and Colorado’s gaming regulators approved online sportsbooks to partner with third-party payment processors that allow cryptocurrency deposits. However, Barstool Sportsbook is currently the only operator capitalizing on the opportunity; Barstool uses a licensed cryptocurrency exchange to convert the deposited cryptocurrency into useable funds, funds which then appear in a customer’s gaming wallet as US Dollars and can be wagered as normal.

Ontario recently took a significant step along a different avenue: explicitly prohibiting the use of cryptocurrency in certain contexts. With the launch of regulated gaming in the territory, the Alcohol and Gaming Commission of Ontario (“AGCO”) explicitly addressed and restricted the use of cryptocurrency as a deposit method of account funds in its Registrar Standards for Internet Gaming. Standard 5.69 states:

Players may be permitted to deposit funds into their player accounts only after the appropriate verifications and authorization. 

Requirements – At a minimum, deposits shall be verified and authorized to ensure the following:

  1. Deposits made are appropriately authorized by a financial services provider.

Note: Cryptocurrency is not legal tender and shall not be accepted.

Two possible interpretations seem to flow from Standard 5.69 and its Note. First, the Standard might strictly define legal tender as the only acceptable form of money to be used as a deposit method. Alternatively, legal tender might be the only acceptable form of money because it can be appropriately verified and authorized by a financial services provider. In either case, Standard 5.69 is an explicit restriction on the use of cryptocurrency as a method of deposit to fund consumers’ gaming accounts on the basis that it is not legal tender.

The AGCO’s distinction regarding legal tender is a crucial one. Legal tender is not just money recognized as such by a relevant legal jurisdiction. Instead, legal tender is a form of money defined by its recognition by a government as a satisfactory means to settle various forms of debt, including contractual obligations and tax payments. Accordingly, where a debtor offers legal tender to settle a debt, the act of tendering payment absolves the debt, even if the creditor does not accept it. (This, of course, almost guarantees that creditors will accept that form of payment.)

Accordingly, when a government excludes cryptocurrency from its definition of “legal tender,” it can be used to settle debt, but the mere tendering of payment does not absolve a debt in the eyes of the law. 

In the United States, the U.S. dollar and Federal Reserve notes and coins are both legal tender. But the broader category of money can include numerous other forms of payment, including cryptocurrency. For example, in 2013, the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”), which regulates money services businesses (“MSBs”), issued its first guidance related to virtual currencies. FinCEN warned that “exchangers” and “administrators” of convertible virtual currency may be subject to anti-money laundering (“AML”) obligations and other FinCEN regulations. Recent guidance clarified that convertible virtual currencies are subject to FinCEN regulation regardless of the technological features behind the transmission of value—no matter whether a centralized or decentralized exchange recorded the transaction, for example. Further, a 2020 joint Bank Secrecy Act proposal by the Federal Reserve and FinCEN broadened the definition of “money” to include (1) digital assets that have legal tender status in any jurisdiction and (2) cryptocurrencies that lack legal tender status. Additionally, most states regulate cryptocurrencies under existing money transmitter or MSB laws.

While both the AGCO and U.S. gaming regulators currently prevent the use of cryptocurrency as a deposit method, their approaches represent different possible paths for cryptocurrency’s adoption. On one hand, the AGCO’s “legal tender” approach would present an almost insurmountable obstacle for cryptocurrency in U.S. sports betting and gaming markets, because the U.S. Constitution bars the states from defining what constitutes legal tender. On the other hand, the current U.S. regulator approach, whereby states determine what types of money qualify as acceptable deposit methods on their own terms, presents an easier path for the initial adoption of cryptocurrencies, although the industry’s maturation will inevitably invite greater regulatory scrutiny. 

No matter the approach, standardized, accessible, and, most importantly, safe deposit methods will be an important element to the proliferating iGaming and sports betting markets in the United States as well as Canada. Only time will tell whether cryptocurrency will become a part of regulated iGaming’s expansion.

[1] N.J.A.C. 13:69O-1.3(d). https://www.nj.gov/lps/ge/docs/Regulations/CHAPTER69O.pdf 

Related: Sports Betting Lawyers

 

Jake Gray

Jake Gray

Jake Gray is a graduate of Columbia University and an established technology researcher, currently working in the betting and futures space as a consultant to a variety of operators. He frequently writes about online gaming and sports betting laws.

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