The cryptocurrency sector is at a crossroads between its decentralized roots and the push for centralized regulation. The need for oversight is clear. However, the approach to regulating the crypto market can significantly impact the entire crypto ecosystem and the industries it touches.
For instance, The United States Securities and Exchange Commission (SEC) took an aggressive approach, resorting to enforcement actions and litigation. Conversely, the European Union’s Market in Crypto-Assers (MiCA) follows a more balanced and comprehensive approach to regulating cryptocurrencies.
The different approaches impacted the crypto market and the traditional industries that have integrated cryptocurrencies. From finance to real estate, industries should prepare to adapt to sudden changes in regulations and their impact.
The Gaming and Gambling Industry
The gambling industry was one of the first sectors to adopt and integrate cryptocurrencies into their operations. Consumer demand and technological advancements accelerated the adoption.
Crypto Casinos
Crypto casinos are a growing segment worth $205 million within the global online casino market, valued at $305.8 billion. These crypto-gambling platforms have gained immense popularity due to the ease of cross-border transactions. The perceived anonymity provided to players has also made them popular.
While some operate in less-regulated jurisdictions, Graziella Calleja from SportsCasting.com explains that crypto casinos are not restricted by local regulations and are licensed and regulated by established bodies like the Malta Gaming Authority. It provides access to players from across the globe. It allows them to place wagers using cryptocurrencies like Bitcoin on various games like slots, poker, and blackjack.
Despite this global accessibility, some jurisdictions completely prohibit online gambling using cryptocurrencies. Stricter regulations of cryptocurrencies in some countries might limit the ability of crypto casinos to operate in those markets, such as implementing outright bans.
For instance, in France, regulatory actions have directly impacted crypto casinos’ ability to operate in the country. The French Gambling Authority took decisive action by blocking 281 domain names. It was based on France’s ban on gambling with cryptocurrencies, citing concerns about fraud, money laundering, and potential terrorism financing.
Play-to-Earn (P2E) Gaming
P2E gaming models are creating new economic opportunities for players to earn real money or valuable digital assets through gameplay. There’s been increasing scrutiny on how to classify in-game tokens and rewards. Some jurisdictions may consider these as securities, which could subject P2E games to much stricter financial regulations.
In 2023, the SEC filed a lawsuit against Binance, identifying three popular games they believed to be securities. The SEC claimed that Axie Infinity, Decentraland, and The Sandbox’s in-game tokens should be subject to the same strict financial regulations that govern traditional securities. The lawsuit has been extended to 2026, and the outcome could have far-reaching complications for Web3, crypto, and blockchain gaming. It could require game developers and platforms to comply with complex securities law.
Esports and Gaming Tournaments
The use of cryptocurrencies for prize pools and payments has gained significant traction in the esports and gaming industry. Esports and gaming tournaments make money through multiple streams, with advertising and sponsorships being a significant part of their income. In 2022, sponsorships accounted for 60% of esports revenue, generating $800 million.
In the UK, these revenue streams are subject to regulatory oversight, such as the FCA’s regulations on crypto advertising. That influences and impacts how certain sponsors can be promoted in esports and various sectors such as professional sporting leagues. In 2023, UK-based esports organization Brit Gaming planned to host a large-scale Counter-Strike tournament with a £1 million prize pool. The tournament, funded entirely by Bitcoin, aimed to attract top international teams. It was also going to be broadcast globally. BritGaming secured a sponsorship deal with a cryptocurrency exchange, “CryptoFast.” That would provide Bitcoin for the prize pool and have its logo prominently displayed during the event.
However, FCA regulations on crypto advertising meant the Bitcoin prize pool fell under the FCA’s definition of “qualifying crypto assets.” BritGaming had to ensure that any promotion of Bitcoin adhered to the new rules. They included clear risk warnings and cooling-off periods for investors. CryptoFast’s logo could not be displayed during the tournament. Besides, any fan tokens and NFT collectibles tied to the event had to comply with the marketing and advertising rules. In the end, BritGaming had to completely restructure its tournament format, prize distribution, and sponsorship agreements. That resulted in increased operational costs.
The Financial Services Sector
Regulatory changes have significantly impacted the financial services sector, especially regarding cryptocurrencies and blockchain technology. These regulations aim to balance innovation with consumer protection and financial stability. The Office of the Comptroller of the Currency (OCC) issued several “interpretive letters” detailing how traditional financial institutions can enter into transactions involving cryptocurrencies.
In early January 2021, the OCC announced that national banks and federal savings associations could use public blockchains and stablecoins for transactions. This development allowed banks to process payments much quicker and without the need for intermediaries, essentially putting blockchain networks in the same category as SWIFT, ACH, and FedWire.
Traditional Banking
Regulations have pushed traditional banks to adapt to the crypto landscape, addressing any concerns about AML/KYC while also requiring them to explore new opportunities. In 2019, the Financial Crimes Enforcement Network (FinCEN) determined that any cryptocurrency transactions and custody services conducted through crypto entities considered money service businesses must still adhere to strict AML/KYC regulations.
These regulations actually allow banks to conduct due diligence on customers involved in crypto transactions, reducing anxieties about the risks these transactions pose but also going against the decentralized nature of cryptocurrencies.
Payment Processors
Payment processors have had to adapt to new regulations surrounding crypto transactions, balancing the potential for faster, cheaper transactions with compliance requirements. The UK’s FCA introduced new rules in 2023, requiring businesses promoting crypto products or services to include clear risk warnings in their marketing materials. That impacted and limited how payment processors can advertise and offer crypto-related services.
Investment Firms and Asset Management
Regulations have both limited and provided new opportunities for investment companies and asset managers in the crypto sector. The UK’s Financial Services and Markets Act 2023 (FSMA 2023) brought cryptoassets within the scope of “regulated activities,” which include managing investments. It means investment firms dealing with crypto assets must now be authorized by the FCA or be exempt under FSMA 2000. This change has significant implications for how investment companies can offer and manage crypto-related products
E-commerce and Retail
Cryptocurrency regulations have significantly influenced the e-commerce and retail sectors, affecting how businesses can accept and process crypto payments. In Japan, the Payment Services Act was amended in 2017 to recognize cryptocurrencies as legal payment methods. That led to an increase in crypto adoption among retailers. Major e-commerce platform Rakuten began accepting Bitcoin in 2015 and has since expanded to other cryptocurrencies, integrating them into its loyalty program.
Crypto Payments in Online Shopping
Regulations around crypto payments have changed how online retailers can accept cryptocurrencies. In the US, the state of Ohio briefly allowed businesses to pay taxes using Bitcoin in 2018. While this was later suspended, it demonstrated the potential for cryptocurrency integration in everyday transactions. Today, most major retailers like Walmart, Gucci, and Target accept cryptocurrencies as payment.
Loyalty Programs and Tokenization
Crypto regulations have created new opportunities for loyalty programs and tokenization in retail. In Singapore, the Monetary Authority of Singapore (MAS) introduced the Payment Services Act in 2019, which provides a framework for regulating cryptocurrency payments and exchanges. It has enabled companies like Qoo10, a major e-commerce platform in Southeast Asia, to launch its blockchain-based digital currency, Qcoin, for use in its loyalty program.
Media and Entertainment
The media and entertainment industry has seen significant impacts from crypto regulations, particularly in content monetization and rights management. In the UK, the FCA has implemented regulations affecting how cryptocurrencies can be used in the media sector. It has influenced projects like the BBC’s exploration of blockchain technology for content rights management and micropayments for digital content.
Crowdfunding and Fan Engagement
Cryptocurrency regulations went as far as changing how crowdfunding platforms and fan engagement initiatives can use crypto. In France, the PACTE law of 2019 established a framework for regulating crypto-assets, including their use in crowdfunding. It has allowed platforms like Socios.com, which allows fans to purchase team-specific crypto tokens, to operate within a clear regulatory environment. Major football clubs like Paris Saint-Germain have launched fan tokens on this platform, allowing supporters to participate in club decisions and access exclusive rewards.