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With an economy based largely on cattle, oil and mining, policymakers in Wyoming have grabbed the attention of gaming operators, attorneys and payment processors after becoming the first state to regulate the use of cryptocurrency for wagering on sporting events.
A state law, which has been on the books since April, expressly allows online betting operators to accept “digital, crypto and virtual currencies” as funding methods for accounts, in a first-of-its-kind provision for the U.S. sports-betting market.
David Carpenter, project manager for sports betting for the Wyoming Pari-Mutuel Commission (WPMC), said it was no surprise that cryptocurrency was an accepted method of payment included in House Bill 133, the online wagering sports bill, given various other initiatives the state has taken to be a leader on virtual currencies.
“The WPMC will likely begin approving third-party payment processors that specialize in cryptocurrency exchanges paving the way for partnerships with the individual operators,” Carpenter told VIXIO GamblingCompliance.
When that will happen, however, is less clear.
“The delay in establishing cryptocurrency as a full method of payment will likely come from the appetite of the operators who haven’t had the opportunity to operate in such a crypto-friendly market,” Carpenter said.
Wyoming’s first two online sportsbooks — BetMGM and DraftKings — began operations in the state shortly after their gaming licenses were approved on September 1.
Currently, customers cannot fund their BetMGM account directly with cryptocurrency, although once cryptocurrency is converted into U.S. currency it can then be deposited.
“At this time, BetMGM does not have plans to incorporate blockchain or digital currencies into its operations,” the company said in a statement.
Messages seeking comment from DraftKings were not returned.
“While Wyoming would appreciate becoming the first state to officially accept crypto as payment for sports wagering, it is likely the operators will be hesitant to adopt the payment method until it becomes more widely accepted in larger markets,” Carpenter acknowledged.
“Hopefully with the help of states like Nevada and Texas looking to pass legislation similar to ours, the operators will begin to explore viable options for accepting cryptocurrency,” he added.
Lawmakers in the least populous U.S. state have previously embraced cryptocurrency and blockchain technology in general, revamping state financial rules several years ago to attract digital currency start-ups.
In 2019, the state approved a charter for banks that deal mostly in digital assets called a special purpose depository institution. Firms that deal primarily in digital currencies can apply for a license, which requires them to be fully reserved and prohibits lending using customer deposits of fiat currency.
“It’s a real credit to their regulators that cryptocurrency is an accepted payment method,” said Jonathan Michaels, senior vice president of strategic development and government affairs at Sightline Payments, which provides payments technology for gambling operators.
“I’ve had a dozen discussions with regulators and half of them say no and the other half say they’re interested but don’t know enough about it,” Michaels said. “There’s not a consensus among regulators. There is an appetite to learn more and how it fits into the ecosystem.”
The incorporation of cryptocurrencies raises a number of questions for gaming regulators.
“I think most regulators will want a deeper understanding of the crypto ecosystem and greater comfort regarding the level of regulation applicable to the industry,” said Behnam Dayanim, attorney with Paul Hastings in Washington, D.C.
Dayanim said recent efforts by the Financial Crimes Enforcement Network (FinCEN), Office of Foreign Asset Controls (OFAC) and state financial services regulators to clarify regulatory expectations in the space will help toward that goal.
“Gaming regulators ultimately may differentiate between U.S.-licensed exchanges, on the one hand, and offshore or unlicensed exchanges, or self-hosted wallets, on the other — permitting funds to be deposited from or paid out to the former but not the latter,” Dayanim said.
“The most significant challenges are related to source of funds and related anti-money laundering compliance,” Dayanim said. “While individual patrons will still be KYC’d [Know your Customer] and betting activity will be geo-located, identifying the source of crypto funds used by the patron will present compliance considerations particular to cryptocurrency.”
Restricting crypto transfer to those originating with U.S.-regulated exchanges would help ameliorate those issues, he added.
Brett Abarbanel, director of research at the University of Nevada, Las Vegas (UNLV) International Gaming Institute, said one of the major things gaming regulators will want to see with crypto is more confidence around consumer protection.
“Crypto has some significant benefits in terms of transparency and being able to see where and how transactions move to, through, and from a gambling platform,” Abarbanel said.
“While crypto gambling was once a fairly niche market, it’s become much more mainstream in an incredibly short period of time, so many regulators, legislators, and the general public are still going through a learning curve with these products.”
Abarbanel noted that cryptocurrencies now go beyond some of the more familiar currencies, such as Bitcoin, to a wide variety of individual tokens (such as ERC-20 tokens) that offer additional currencies that can be site-specific.
“When we think about the vast variety of cryptocurrencies that exist, this can get quite convoluted from a regulatory tracking perspective, and quickly,” Abarbanel said.
The UNLV researcher noted the recent example of the cryptocurrency based on Netflix’s Squid Game that plummeted in value after its creators sold all their coins.
Abarbanel said that if a similar situation were able to occur for a sports-betting cryptocurrency, it would be damaging for both the operator and regulator, “so in this example, compliance measures from both perspectives would need to accommodate what to do in value fluctuations.”
