The cryptocurrency hype is hitting the online gambling market like a tornado on a mid summer’s morning. Latest research points out that offshore online casinos and betting sites have invested more than 40 percent in all things crypto.
Anonymity Plays a Huge Role
Due to the anonymity Bitcoin and various other digital currencies offer it’s easy to bypass federal law as such it muddles the gambling tax reporting. By the end of 2017, 42 percent of virtual casinos licensed abroad used cryptocurrencies for deposits and 85 percent had used them to withdrawal funds.’
Many believe that because of the fanfare that currently surrounds cryptocurrencies it’s expected that the deposit and withdrawal rate at offshore operators will shoot up to 100%.
Thousands of U.S customers use Bitcoin and other cryptos to wager at online bitcoin casinos because transactions remain anonymous. An attorney at law in the United States said that U.S players can bypass federal laws due to the anonymous nature of most cryptos.
”With bitcoin (or cryptocurrencies in general) no one can stop you from doing whatever you want with your money. That’s why many gambling sites have opted into accepting it as payment.” Ofir Beigel, General Manager 99 Bitcoins
Americans and The Offshore Gambling Market
”The 2006 Unlawful Internet Gambling Enforcement Act (Pub. L. No. 109-347) outlaws the business of betting or wagering, but the statute has only been applied to gambling operators, not individuals.”
Players from the United States are currently plying their trade at sports betting sites licensed in other jurisdictions because cryptocurrencies erase geographical boundaries, although most states ban it. Online gambling in the U.S is only regulated by three states (Delaware, New Jersey and Nevada), other states like California, New York and Pennsylvania have already passed bills that will see regulation through. Due to all the red tape involved with online gambling regulation it’s become a convoluted mess.
Regardless of how much the U.S government wants to stop its citizens from wagering at offshore sites the majority of U.S players feel that it’s their money and don’t want to be dictated by a government telling them what to do with it and how it should be spent.
The U.S black market handles around $60 billion per year with a estimated revenue of $3 billion. This is the amount of cash that’s currently lining the pockets of online casinos and betting sites based in other jurisdictions. Eilers & Krejcik a law firm that specializes in the global online gaming industry said that between 12 million and 15 million Americans are gambling illegally at offshore bookies.
Depositing with Bitcoin
The pros of depositing and withdrawing in Bitcoin far outweighs its cons. There’s a downside to gambling in bitcoins because of its volatility, over the long haul players could loose a substantial amount of wealth. That said, there are gamblers that invest a portion of their winnings which offsets their loses and Bitcoin’s volatility.
Also, many reinvest the cryptos they’ve won by purchasing a house or investing it in other assets that have long term value. The good news is that the federal government hasn’t gone on witch hunt yet by pursuing gamblers who wager offshore, it has however investigated individuals affiliated with illegal gambling networks, a good example is PokerStars, Full Tilt Poker and Absolute Poker which flouted the UIGEA.
”People who gamble offshore gambling with cryptocurrencies “should be aware that the U.S. government had success in the past in getting enough information through the distributed ledger and through certain individuals who participated in the actual transactions.”
Tax Reporting Problems
Gambling funded by cryptocurrencies allows U.S players anonymity but they still have to report the cash they’ve won to the IRS.
‘‘You are obligated to pay an excise tax from winnings, even from illegal gambling wins.”
The IRS says that wagers that are legal are subject to a tax of 0.25 percent if it’s illegal the tax rate shoots up to 2%. Because cryptocurrencies are treated like property, tax payers must indicate the market value of them when they report their gross income.
Cryptocurrency gambling allows players to offset their loses, this can’t be done with fiat currencies, one of the reasons why Bitcoin has become so popular. The volatile nature of Bitcoin poses a problem because in less than 48 hours it dropped by more than a $1,500. This adds a degree of complexity when it comes to calculating not only the tax that must be paid but the fair market value too.