DraftKings Launching Crypto-to-Cash Deposits in Quartet of States

• DraftKings will allow customers in four states to convert cryptocurrency to cash for sportsbook deposits in four states
• That creates a taxable event for bettors
• Crypto still not permitted as a direct wagering account funding method in most states

DraftKings (NASDAQ: DKNG) sportsbook clients in four states will soon be able to convert cryptocurrency to cash to fund their accounts.

The revelation was made at a recent meeting of the Massachusetts Gaming Commission (MGC), though that’s not one of the states permitting that funding avenue DraftKings accounts. The states permitting it are Illinois, Kentucky, New Hampshire, and Vermont. Gaming regulators in Kentucky and Vermont confirmed to various media outlets those jurisdictions are permitting crypto-to-cash conversions for DraftKings customers. Massachusetts was expected to be part of the test group, but last month, the state backtracked.

“We believe, basically, crypto is not ready for primetime,” said Caitlin Monahan, director of the MGC’s Investigations and Enforcement Bureau (IEB), at a December MGC meeting. “We really don’t think at this moment in time, in this regulatory structure, it is a funding source that is ready to be incorporated and that we want to be encouraging.”

DraftKings hasn’t publicly disclosed which digital currencies it will allow clients to convert to cash or if the menu of such options will be broad or limited. Bitcoin and Ethereum are the two largest cryptocurrencies by market capitalization.

Crypto-to-Cash Could Be Alternative to Credit Cards

Last August, DraftKings halted acceptance of credit cards to fund iGaming and online sports betting accounts. Some states allow that form of wagering account funding, but many don’t, including Illinois, Iowa, Massachusetts, New Hampshire, Tennessee, and Vermont. Virginia recently passed legislation to that effect as well.

DraftKings customers can, however, fund daily fantasy sports (DFS), internet casino, and sports betting accounts with debt cards. Other deposit  methods include Apple Pay, bank wires, and cash deposits at select retailers and other locations.

In other states, the workaround has been for crypto-enthused bettors to purchase sportsbook operators gift cards in crypto and use those cards to fund their accounts.

With Crypto-to-Cash, DraftKings Customers on the Hook for Taxes

DraftKings customers in Illinois, Kentucky, New Hampshire, and Vermont may find it convenient to convert cryptocurrency to cash to finance their betting habits, but that convenience comes with a cost: A tax tab. When Bitcoin or any other digital currency is converted to fiat currency, a taxable even is created.

“When you sell virtual currency, you must recognize any capital gain or loss on the sale, subject to any limitations on the deductibility of capital losses,” according to the IRS.

Short-term, or less than a year, capital gains taxes on cryptocurrencies range from 10% to 37% while long-term capital gains on the asset class are 20% at the high end.