Despite being one of the burgeoning trends to have emerged in the cryptocurrency and blockchain industry over the past few years, crypto gambling is still a cause of confusion for many an investor. The market is now estimated to reach the $90 billion mark at the end of 2024, and data from SOFTSWISS shows an increase in crypto betting of 116% from 2021 to 2022, but cryptocurrency users aren’t always sure of the taxation implications of the activities they’re participating in.
It’s easy to see where the confusion occurs; a lack of consistent global regulations means there is no unified approach to legislating any type of crypto activity, including crypto gambling. Even major gaming territories have adopted wildly varying stances on the use, purchase, and trading of cryptocurrencies, which contrasts strongly with the seemingly widespread availability of platforms and websites offering gaming and betting with crypto options.
This fragmented landscape can make it difficult to know where you, as a crypto enthusiast, stand, especially if you’re looking to gamble with digital assets. In this article, we’ll walk you through the tax landscape as it is currently and share our best tips for safeguarding when participating in any online gambling practice.
What Are The Benefits of Crypto Gambling?
Crypto gambling has some interesting potential upsides compared to traditional online gambling. For one, it offers more privacy and anonymity since crypto transactions only use wallet addresses, not your personal information. This means you can gamble without handing over identifying data to a site or company.
There’s also no single entity that holds your money or information, which could provide more security and reduce risks like identity theft. The decentralized nature of crypto is a huge perk here that draws millions of gamblers towards crypto, as a secure mode of payment.
Moreover, there are multiple monetary incentives for crypto-exclusive gamblers, which make the entire gambling experience more profitable and exciting. For instance, many platforms reward those who play for real money with crypto – through crypto deposit welcome bonuses, spanning nine lucrative welcome bonuses for nine deposits on the platform. There are also crypto memberships, which lets players access additional benefits, in tandem with the welcome bonuses.
Where Does Crypto Legislation Stand?
Conscientious crypto investors are more than aware of the fractures in the regulation landscape when it comes to the use of decentralized currencies, and this extends to crypto gambling too. Confusingly, things tend to vary from country to country, meaning there’s no simple answer to the question about where things stand in the sector.
At the time of writing, several organizations across the globe are either planning or are in the process of initiating new standards on digital assets, including the Basel Committee on Banking Supervision and the Financial Stability Board.
The EU, for instance, is in the final stages of preparing its new Markets in Crypto Assets regulation (MiCA) for launch in 2024, which will introduce a set of comprehensive rules that will govern the management of the sector in its member states. What this will mean for the individual crypto user remains to be seen, but any business looking to offer crypto services in the EU will need authorization from one of the bloc’s 27 national financial regulators.
The UK government aims to bring crypto and blockchain into the wider finance industry by launching regulations that will categorize crypto assets as financial instruments in 2024, while a similar motion is in play throughout the US as progress is being made on advancing countrywide legislation for digital assets.
Will My Winnings be Taxed?
When participating in crypto gambling there’s always the possibility that the wagers you make will be winning ones. How then, will your winnings be taxed? Well, given that the regulation in the industry is in such a state of flux, we’re still waiting for specific guidance on how crypto gambling winnings will be taxed in major jurisdictions. Currently, there’s no global standard in place, so depending on where you live, you could be looking at a larger tax bill or face restrictions should you choose to trade your gaming profits later down the line.
Sticking with the US, for a moment, all crypto winnings generated by residents are subject to Federal and State Income Tax. In the UK and Canada, however, actual winnings are tax-free. On the other hand, spending crypto to play games or place wagers could be seen as purchasing goods or services in all three countries and therefore subject to capital gains tax, but since there’s no guaranteed outcome you could feasibly write off these transactions.
It’s also another story when it comes to trading and selling your winnings, thanks to capital gains tax, but that too comes with an extra portion of complexity.
Capital gains tax is applied to the difference in value between when you acquired your asset and when it was sold. If that value hits a certain amount, you’ll be required to pay a tax percentage according to its cost basis. But, it could be argued that the cost basis of crypto gambling winnings is zero, potentially making your entire pot subject to capital gains tax.
Smart Ways to Play with Crypto
There are plenty of great reasons why you might want to get involved with crypto gambling. It’s extremely convenient and often subject to low or non-existent fees, and it can provide additional layers of transparency (and therefore, security) for transactions. It is obvious that any iGaming activity you participate in should be in strict accordance with the laws of your country of residence, but there are also a few other things to keep in mind to ensure you get the most out of your crypto-gambling experience.
Firstly, new projects are launching all the time, so we always recommend playing with a licensed and reputable operator. Instead of signing up to a brand-new crypto casino, look for more established brands that have branched out into accepting decentralized currencies.
Remember, too, that crypto gambling is as volatile as any other market in this industry, so don’t wager or play with more than you can afford to lose. Moreover, to get the most out of any potential winnings, opt for payouts in leading currencies, whether that’s Bitcoin or popular altcoins like Ethereum and Tether.
