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Ask the expert Q&A: what does the collapse of FTX mean for the crypto gaming industry?

The sudden collapse of cryptocurrency exchange FTX in November sent shockwaves through the digital currency market, with some estimates predicting more than a million investors will be left out of pocket.

betcoco

The sudden collapse of cryptocurrency exchange FTX in November sent shockwaves through the digital currency market, with some estimates predicting more than a million investors will be left out of pocket.

The company’s bankruptcy filing followed a year of extreme volatility for cryptocurrencies, with some other crypto companies temporarily freezing withdrawals in June and Bitcoin having suffered a prolonged slump over the past year or so.

The slew of bad news for crypto assets has prompted repeated warnings about the risks of investing in the highly volatile crypto space from the UK’s Financial Conduct Authority (FCA) and the International Monetary Fund.

In particular, the FCA has repeatedly likened cryptocurrency investment to gambling and said investors should be prepared to lose all of their money.

However, the gambling industry itself has proven to be a keen adopter of crypto, with digital currencies attracting many new players and becoming a powerful acquisition tool for some operators. 

Below, Mike Fox, CFO of Crystal, the creator of crypto operator BetCoco, gives his take on how the FTX situation will impact crypto gaming.

The collapse of FTX has obviously had a big impact on sentiment in terms of investing in cryptocurrencies. Do you think this will have an effect on gambling operators and how they manage cryptocurrency products?

The crypto bear market was clearly further impacted by the FTX debacle. However, the FTX failure was the result of poor management and a lack of regulation, which can happen in any industry. You could compare the crypto markets of 2022 with the early days of the internet, when there were plenty of dot.com failures.

However, we see a clear consensus that blockchain adoption will continue to rise, and with it the use of cryptocurrency. Therefore, we think operators are seeing a softening on crypto usage in the immediate short term, but that a rebound will occur as the crypto markets bounce back. As an operator, our plan is to be ready to attract more crypto players as people see market pricing increase and confidence in crypto returns.

In November, Softswiss released figures suggesting crypto had fallen as a percentage of its betting volumes in the third quarter of this year, while fiat currencies had grown. Have you seen or experienced any similar trends?

Yes, we have had a slight drop-off in crypto usage, but we expect a rebound in 2023. We feel this is a temporary situation and that a great many crypto users are holding their position and waiting on a bounce in the market. As market pricing increases, we expect a higher number of crypto transactions.

Regulation and legislation around crypto is becoming more prevalent around the world. JP Morgan said very recently that regulation is coming to crypto following the FTX collapse and highlighted the importance of self-custody, asset security and customer protection

Many crypto sites offer fiat currency options as well as crypto. What’s the thinking behind offering both? Do many players switch between the two and why?

Having multiple options to place bets and providing ease of adoption for the players is very important in player acquisition and retention. During the bear market, we saw a drop-off in players switching between crypto and fiat. However, we expect that to increase as crypto prices increase and become more volatile during the bull run we are predicting.

How does offering a crypto product differ from a compliance perspective compared with fiat, given cryptocurrencies are largely unregulated?

Due to the decentralised nature of cryptocurrencies, users are guaranteed data security with very low chances of hackers intercepting the transaction. Players can also receive winnings more seamlessly with direct deposits into their wallets. It eliminates the bank middle man and associated costs.

Regulation and legislation around crypto is becoming more prevalent around the world. JP Morgan said very recently that regulation is coming to crypto following the FTX collapse and highlighted the importance of self-custody, asset security and customer protection. As it relates to iGaming, we think regulated central exchanges will create more crypto adoption and increase the use of crypto in all types of consumer transactions.

What does 2023 hold for crypto within the gaming space? Do you see it being adopted at around the same level as in 2022, or potentially even more?

We’re bullish on crypto markets rebounding in 2023, given that there are many crypto projects currently building their ecosystems during this bear market – with plans to launch in 2023. We predict a bull market run towards the middle of 2023, fuelled by alt coins with true utility and the 50x to 100x returns for early purchasers.

Many crypto investors bought into the markets at the bottom and, as the markets increase, they will have more disposable income. We believe that will fuel an increase in crypto betting in the second half of 2023.

For more on crypto within the gambling sector, check out Adam Gros on the GI Huddle (live on 1 December) and our in-depth on the pros and cons of crypto casinos.

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