The digital revolution has made it to the doorstep of Atlantic City, and the persistent knocking just won't cease. Once again, New Jersey finds itself at the forefront of iGaming innovation (albeit against their will), with state gaming regulators considering a new addition to online gambling platforms. More specifically, there has been much debate on whether it is a good idea to allow these platforms to let players gamble using cryptocurrencies like Bitcoin and Ethereum. While in theory, this may seem like a good idea to boost state revenue and guarantee consumer protection, several factors stand in the way of this.
A large reason why this change is being considered lies in the copious amounts of untaxed revenue going to offshore iGaming platforms. With an increasing number of punters looking to gamble with their cryptocurrencies (and the lack of local options), offshore entities have become a go-to for many. For example, players can choose their favorite online roulette real money app, quickly install it on their smartphone, and enjoy game variants like Double Dragon and Lightning Roulette (source: https://adventuregamers.com/online-casinos/roulette-apps). The best part of these platforms is that they support traditional payment methods (credit/debit cards) alongside cryptocurrencies and Person2Person options.
This raises a valid concern that regulators and casino operators have regarding the integration of cryptocurrency: how will finances be managed when working with such a volatile asset? Looking at how offshore operators navigate this hurdle can actually provide an actionable solution. Although these methods may differ between operators, the most efficient way would be the conversion of crypto to a stablecoin or fiat currency upon deposit. In doing so, the currency maintains its initial value and continues to maintain it even if there is a market change. Once it is time for withdrawal, the funds are converted back to their crypto form, whereas for accounting/bookkeeping purposes, they would remain a stablecoin or fiat currency.
With many states having similar discussions surrounding cryptocurrency in relation to gambling or the legalization of gambling as a whole, this might seem a futile topic. However, it is worth the reminder that New Jersey is a state not afraid of taking risks, with the track record to prove it. In 1978, Atlantic City's first casino opened its doors following the narrow approval of casino gambling in 1976. A few decades later, New Jersey appeared on the front line of iGaming, legalizing online gambling ahead of most US states.
It can be argued that this action was a catalyst for many other locations to either move forward with legalizing iGaming or start considering it. The last move was back in 2018, when the New Jersey legislature prepared a bill proposing that sports betting be legalized. Even though the bill underwent many revisions, Governor Murphy still signed it into law mid-year. These are all instances of how New Jersey not only established itself as a risk-taker but also a trend-setter. As such, just based on its track record alone, these state considerations should be taken much more seriously, as they can very quickly be put into action.
New Jersey's DGE (Division of Gaming Enforcement) has already thought out a way to test the waters before actually committing. Their proposed method is to use what is being referred to as the "Regulatory Sandbox", which is basically a testing ground for licensed operators. Naturally, this has raised questions regarding the agenda the DGE may have, but it is simply to find out whether this change could work in the long run. Borrowing from offshore counterparts, the idea is to start with a hybrid system that allows players to bet using cryptocurrency.
From here, those would follow the suggested conversion to US dollars until players are ready to withdraw their winnings. Although this system works for offshore (or out-of-state) platforms, many kinks could stem from this, specifically in the regulatory sense. However, it is still a great way to test whether this is a good way to combat volatile swings in the crypto market, as the entire model will be under strict supervision. Even more, should there be any regulatory arise, it is a good opportunity for the DGE to make their notes and begin formulating solutions.
With how rapidly online gambling has been spreading (and how easily accessible it is), there has been a push for more stringent gaming regulations. New Jersey prides itself on consumer protection, and should there be an approval for crypto gambling sites, these regulations would need to apply. More specifically, these mandates are to ensure that player behavior is being monitored more closely to maintain financial and public health. Consumer protection seems to be the biggest hurdle New Jersey is facing in considering crypto gambling, as there are no frameworks in place for the digital currency on its own.
As it is a digital currency, crypto would require a very expensive, sophisticated tracking system to ensure compliance with AML (Anti-Money Laundering) requirements. Digital flows would need to be monitored and, to also comply with federal reporting requirements, suspicious transactions would need to be flagged. However, New Jersey will need to figure things out on their own, as the (very) outdated 2006 Unlawful Internet Gambling Enforcement Act is of little assistance. Will the state be able to navigate its way through this minefield unscathed?
Despite retiring in 2024, the words of former DGE leader David Rebuck still ring true, especially with the current New Jersey considerations. Rebuck believed a strategic, passive approach was best, wherein the state should watch how crypto developments unfold from the sidelines. As opposed to making a rash decision, this would allow the DGE to fully evaluate the landscape before trying to get its foot in the door.
Despite Rebuck's advice, legislative efforts have already been made to establish a regulatory framework for virtual currencies (Senate Bill No. 4163). Even though this does equate to immediate action, it still lays the groundwork for future crypto integration within gambling. While it may seem New Jersey is rushing, it is crucial to understand that such a decision requires much thought and planning before even becoming public news. Ultimately, the DGE's main goal is to create a robust regulatory system that will mitigate any potential risks while protecting consumers.
