Cryptocurrency, gambling regulation and the law: the greyest grey area?

Back in October of last year, the FCA (Financial Conduct Authority) banned the sale of crypto-derivatives to retail customers. A financial derivative is a contract between two parties with value derived from the value of an underlying entity. In plainer English, a derivative is a bet that an asset will rise – or fall – in value within a given timeframe.

People trade derivatives all the time – currencies, stocks, etc. – on platforms like eToro and Plus500, but the FCA has ruled out the practice with crypto-assets. Its reasons for the ban include an “inadequate understanding of cryptocurrency by retail consumers” and “extreme volatility in crypto-asset price movements”.

In short, the FCA sees crypto derivatives as being too risky for trading. There are more reasons than those we set out above, but those get to the heart of what the FCA sees as the risky parts. You can appreciate the logic – it is difficult to truly put a value on a cryptocurrency, particularly those that have reached heights like Bitcoin. If it is worth £40K today, why not £100K tomorrow? Or £1K next week?

Derivative trading often compared to gambling

Derivative trading has often been compared with gambling. Indeed, just go back to the global financial crisis of 2008 to see how that narrative evolved. But where does the law stand on ‘real’ gambling with cryptocurrency in the UK? Can you wager some Ethereum in an online casino? Can you bet a Bitcoin on England to win Euro 2020? The answer is “maybe”. But you will be skirting certain parts of the law and, perhaps more importantly, not afforded the protections of other gamblers.

When it comes to gambling, it is not the FCA but the UKGC that holds the keys to regulation. While it has its critics, the UK Gambling Commission is known as a global leader in gambling regulation, a sector that is often dysfunctional and operates in legal grey areas in many countries.

The UKGC’s attitude to cryptocurrency – both as a means to funding gambling and as a gambling asset – has warmed over the last couple of years, but it certainly has not embraced it. Its policy changed from not entertaining the idea of cryptocurrency-funded gambling at all to claiming it is allowed, but only when certain conditions have been met (more on those later).

Gaming operators use multiple payment methods

Of course, looking beyond regulation, cryptocurrency holds some logistical problems for bookmakers and casinos. Most iGaming sites are keen to facilitate lots of options when it comes to payment methods. You can, for instance, deposit by phone bill at top UK operators,, alongside several other ways to pay ranging from eWallets to payment vouchers.

But there is a logistical problem when it comes to crypto: The operator must deal with that volatility. Despite the assertion that the house always wins, the margins of house edge are very fine – the volatility of cryptocurrency could tip that balance. Going back to the FCA ruling on derivatives, it claimed the “inherent nature of the underlying assets, which means they have no reliable basis for valuation”. You can see how this definition can be applied to betting and casino gambling.

But even if casinos and bookmakers are willing to work with that volatility, they face another issue. Namely, the UKGC’s insistence that operators follow KYC (know your customer) policies. We mentioned the UKGC’s leadership in global gambling regulation, and one area where it leads is the stamping out of fraud, money laundering and the promotion of responsible gambling.

The UKGC has implemented policies where operators must satisfy the regulator that they have done due diligence on customers to ensure that they can afford to gamble what they are spending and that their gambling is not used to launder money or fund illegal activity. How does this pair up with cryptocurrency, which, by its very nature, lends itself to anonymity? In reality, it doesn’t.

UKGC has strict guidelines for operators

If we return to the UKGC’s conditions on gambling operators accepting cryptocurrency, it claims that “you (the operator) must satisfy yourself and us that you can meet your obligations in relation to anti-money laundering and that you are acting in a socially responsible way”.  Effectively, the UKGC wants the same oversight from operators as they do with regular payments. And that’s difficult with crypto, although its adherents would claim not impossible.

But the upshot is this: all the major UK betting and gaming brands you see advertising on television or emblazoned across the shirts of your favourite football team – none of those accepts cryptocurrency. Indeed, it’s difficult to find any licenced UK betting or gaming brand with cryptocurrency gambling options, although this could change.

And that’s where the legal difficulty comes in. You can find loads of cryptocurrency gambling sites, but none of them will carry the stamp of approval from the UKGC. They operate remotely, usually with licences from jurisdictions like Curaçao. As such, the UKGC is powerless to shut them down directly, and many players can use the platforms not paying much attention to their legal status.

So, in that sense, you can fund gambling and bet with cryptocurrency, but you will be rolling the dice in more ways than one. Gambling with a UKGC-licenced operator affords certain protections – legal protections and consumer rights – and you will not find that with an unlicensed operator.