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  • Breakfast with NEXT: How the collapse of Lehman Brothers led Bombay Online MD Jose Micallef to iGaming

For the latest edition of Breakfast with NEXT, Sonja Lindenberg caught up with Bombay Online managing director Jose’ Micallef in Tallinn, Estonia.

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Kero Gaming founder and CEO Tomash Devenishek has challenged the prevailing notion within the sports betting industry that betting is an entertainment product.

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Gambling regulators worldwide are anticipated to intensify their efforts to rein in operators.

Robin Reed, founder of VC investment firm happyhour.io, issued a stark warning at iGaming NEXT Valletta 23, suggesting that the harshest enforcements are still to come.

Reed delivered his somber assessment while sharing the stage with fellow industry leader Tim Heath, who pointed to the restrictive regulatory situation in Europe.

“I don’t think we have seen the harshest enforcements yet,” Reed said, hinting that the industry will have to brace for what may be its most significant crackdown to date.

He further highlighted that regulatory changes and enforcement actions tend to garner attention in the media.

Reed suggested that stricter enforcement of regulations is inevitable “as more areas of the industry come under regulation”.

He predicted decisive action against unregulated operators, as well as tighter scrutiny of licensed operators in regulated markets.

While the iGaming sector has witnessed remarkable growth in recent years, concerns surrounding consumer protection, responsible gambling, and compliance have remained prominent.

In response to these challenges, regulatory bodies have sharpened their focus on ensuring that operators adhere to rigorous standards.

2023 crackdown

The year 2023 has witnessed a notable increase in regulatory fines, with several record-breaking penalties being imposed.

Earlier this year, the UK Gambling Commission ordered 888-owned William Hill to pay a record £19.2m settlement for multiple social responsibility and anti-money laundering failures, while Kindred Group received a £7.1m fine for social responsibility and anti-money laundering failures.

Elsewhere, Videoslots has vowed to contest the largest fine issued in the history of the Dutch regulator after receiving a fine of nearly €10m from the KSA.

Yolo Group and Yolo Investments founder Tim Heath believes the regulatory situation in European gambling is stifling innovation and damaging the player experience.

Heath – who was an early adopter of Bitcoin and founded brands including Bitcasino.io and Sportsbet.io – took part in the opening panel of iGaming NEXT Valletta 23.

During the session, he delivered several industry-focused predictions for the coming year alongside happyhour.io co-founding partner Robin Reed.

The panel was moderated by iGaming NEXT MD Pierre Lindh, who asked Heath what he thought about increasingly strict gambling regulations being implemented across most European countries, from the Netherlands and Belgium to the UK and Ireland.

When faced with the hypothetical scenario of entering a European market with one million dollars of investment and a golden idea for an iGaming start-up, Heath was stumped.

“There are not many pre-regulated markets left in Europe at all,” he said. “There is Finland, kind of Norway, and not really anywhere else.

“I want to be able to come into a market as a small business with a million dollars and bring a grand idea into fruition and then grow that economy.

“But the regulations are so difficult. You need three forms of compliance just to stop yourself from being fined. How does that encourage innovation or growth?”

Operators in regulated markets have been forced to invest heavily in compliance for the best part of five years now.

Those that fall foul of compliance are faced with enforcement action and financial penalties.

For example, William Hill was hit with a £19.2m settlement by the UK Gambling Commission earlier this year, a record settlement in one of the continent’s most stringent markets.

On the mainland, the Netherlands Gaming Authority (KSA) has dished out major fines this year for the likes of Videoslots (€10m) for accepting Dutch players without a licence and for multiple companies including bet365 (€400k) for a breach of marketing restrictions.

“My job [as an operator] is to make the customer happy,” Heath continued. “If my customers are happy, I’m going to be alright for the long run.

“Regulation is not there to engage and promote and encourage new businesses coming through and I just don’t know where I would go in Europe at the moment.”

As well as increased compliance and safer gambling costs, Heath said the cost of working with both affiliates and payment service providers is much higher in mature markets, with some commanding “ridiculous fees” and commission of up to 10%.

“Guess where that [cost] comes off?” he asked. “It comes off the player experience.

“You run your book at 92% because you’ve got to pay for compliance, KYC, payments processing, and then you’re having to pay players in Germany and Austria.”

Heath was referring to the expensive upturn in historical player claims from markets such as Germany and Austria prior to local regulation.

On this topic, Malta has moved to protect MGA licensees with a controversial new law designed to block overseas prosecution.

Adding a final word on the situation in Europe, Heath said: “You are almost just having to defend yourself as opposed to focusing on the single focus of the customer experience.”

The stunning city of Valletta is buzzing with anticipation as it prepares to host the renowned iGaming NEXT: Valletta conference on 21 and 22 of June.

With a sold-out crowd of some 4,000 delegates expected, the Mediterranean Conference Centre is primed to welcome a plethora of leaders from politics, finance and iGaming.

The show’s influential line-up is set to include some political big hitters, with Maltese Prime Minister Robert Abela set to appear alongside Minister of Economy Silvio Schembri.

Javier Silvania, Minister of Finance for Curaçao is another confirmed delegate, where he could reveal the full details of the Dutch Caribbean island’s new online gambling regulation.

Other speakers include Adam Rosenberg of Blackstone, Red Tiger Gaming founder Gavin Hamilton, Yolo Group founder Tim Heath and HappyHour founder Robin Eirik Reed.

These leaders are poised to share their experience and knowledge while discussing the latest trends, strategies, and innovations that are destined to shape the future of iGaming.

Attendees can look forward to lively debates, insightful presentations, and game-changing announcements.

As a global hotspot for iGaming, Valletta’s conference is of monumental importance for the international online gambling industry.

The convergence of global leaders and industry innovators could precipitate significant developments while serving as a catalyst for continued growth and expansion.

Stay tuned to our news portal for updates and in-depth coverage of iGaming NEXT: Valletta.

You can buy a ticket here.

Last month, the former CTO of Coinbase and General Partner at Andreessen Horowitz, Balaji Srinivasan, accepted a bet with renowned hyperinflation doubter James Medlock totalling $2m that Bitcoin (BTC) would reach $1m per coin within 90 days.

Srinivasan believes that there is an impending crisis that will lead to the deflation of the dollar, resulting in mass hyperinflation that will in turn drive up BTC’s price.

It might be that the bet is unwinnable based on BTC’s current price, but I do believe there is a lot of truth in Srinivasan’s arguments, both now and prior, that DeFi solutions such as BTC are needed more than ever in our current, broken financial system.

Indeed, we are moving from over half a century of dollar hegemony to a multipolar monetary system encompassing other currencies, the dollar and, of course, BTC.

I don’t believe that there is an impending crisis. My case is that we’re bang in the middle of one right now.

The Bretton Woods financial system architecture which established a global system based on the US dollar around us is creaking. We have witnessed a multitude of Lehman Brothers moments manifesting over the past year alone, a clear sign that something has to change to protect consumers.

Multipolar monetary order

The dollar today is solely backed by debt. Free of a link to gold since 1971 and with the petrodollar system looking increasingly vulnerable as major Gulf states pivot east towards the likes of Beijing, the value of the dollar now relies solely on trust.

With BRIC nations increasingly calling for their own currencies for international trade, we are seeing the emergence of a multipolar monetary order with currencies like the Yuan increasingly being used for international transactions.

“I don’t believe that there is an impending crisis. My case is that we’re bang in the middle of one right now.

Tim Heath, founder of Yolo Group

The inherent value of the dollar is now less obvious than it ever has been, with only faith in the Fed alone backing it.

Should there be a debt ceiling, the Fed would likely default, resulting in a major stock market crash. Such realities are resulting in de-dollarisation and reinforce the need for BTC which has a set supply and cannot see its value inflated away. Trust in third parties and reliance on debt is not a factor with BTC.

Over just 11 days in March, four US banks failed: Silvergate, Silicon Valley Bank (SVB), Signature and First Republic. We also saw Credit Suisse bailed out, with total direct support for these major collapses totalling over $400bn just to keep the ship above water, by many metrics eclipsing records set in 2008.

No lessons learned

The ‘too big to fail’ narrative continues to be reinforced emphatically at the expense of consumers each and every time as we fail to learn lessons from each collapse. Indeed, many of the changes implemented post 2008 continue to fail.

Rampant money printing and inflation remain out of control, with customers continuing to abandon banks out of fear of collapse and as they seek higher yields, a move catalysed by SVB’s collapse earlier this year.

Average US bank account savings rates are just 0.37%, compared with the Fed’s benchmark rate of almost 5%.

With recent banking collapses, subsequent bailouts and at a time when dozens of regional and midsized banks are set to announce their financial results, it is highly likely that mass deposit outflows by traditionally staid retail investors will continue, thus further impacting market volatility.

In the past year alone, commercial bank deposits have sunk by half a trillion dollars, a decline of nearly three percent as investors move their cash into money-market funds. As consumer funds remain in such ‘narrow bank’ accounts, banks are being undermined and slowly bled as deposits grow scarcer, meaning that further SVB-type collapses are inevitable.

Large corporations like Apple are also giving banks a run for their money. The Silicon Valley-based company entered the savings market this month, offering 4.15% interest in high-yield savings accounts, more than ten times the US national average, in a move designed to test big banks.

In a letter to its investors issued in November last year before the aforementioned major crashes, Elliot Management, a major US-based hedge fund managing nearly $56bn in assets, warned that rising inflation and continued interest rate hikes ‘have set the stage for the biggest economic upheaval since World War II’.

Multiple crises

Such warnings, as stark as they may be, unfortunately should come as no surprise to us given that we are working with a system designed in 1944 ill-equipped to deal with the realities of the situation in 2023.

Continued war in Eastern Europe, ongoing recovery from a worldwide pandemic, global supply chain issues, rising inequality and increasing protectionism are rallying together to stress test our existing system en-masse; a test our system is failing.

Taking the situation in Ukraine as one example and subsequent Western sanctions on Russia, we are seeing BRIC currencies such as the renminbi used for international transactions at an increasing rate, at the expense of the dollar.

All of a sudden, Balaji Srinivasan’s assertion that our current system is ill-equipped to deal with our existing situation and that DeFi has a large role to play in forging a better future doesn’t look like some utopian ideology.

Need for major change

There is no ultimate silver bullet solution, but existing problems demand major financial architecture change.

Bitcoin, I believe, holds the key to helping us unlock a more stable, prosperous financial future.

As investors have increasingly fewer places to shelter in our current financial storm, it should come as no surprise that many are looking to crypto, and particularly Bitcoin, as a hedge against inflation and the fiat standard’s major deficiencies.

Bitcoin hit a 10-month high earlier this month, a psychologically important milestone as it represents where it stood last summer before the market’s decline.

BTC is a form of currency that cannot be manipulated, unlike fiat and traditional banks. Further, its fixed supply means it is the check balance and opt-out of the problems associated with money printing.

Other inherent benefits such as its self-custodial nature and being able to reach anyone with an internet connection and compatible device mean that people need not be needlessly left behind as its cross-border potential is realised every day, reaching those who need it the most.

New financial market infrastructure

Of course, DeFi has its own problems, and FTX’s collapse showcased the need for further regulation and measures such as third-party confirmation of ‘proof of reserves’ in major exchanges. Bitcoin however, as the first kid on the block, is well established and trusted by hundreds of millions already.

The emerging multipolar monetary order will require new financial market infrastructure that enables the co-existence of TradFi and DeFi.

This means that further crypto regulation, large-scale investments and government support is required. The technology must be respected, understood and utilised, and we must work with it, not against it if we are to secure a better financial future.

We have been plastering over the major gaps in our 1944-based financial architecture for too long and must look to DeFi technology when forging a more secure, better financial future placing consumer protection at its very core. The world must move on from dollar hegemony to one where the dollar, BRIC currencies and BTC can co-exist.

As central banks continue creating instability by manipulating money supply, it is only a matter of time before the next collapse.

This post first appeared on Medium.com.

Tim Heath draws upon two decades of experience within the iGaming and emerging technologies sectors as GP of Yolo Investments. An early adopter of Bitcoin in 2013, he was founder and CEO of the Yolo Group (formerly the Coingaming Group) until 2020. The group operates leading crypto gaming brands Bitcasino and Sportsbet.io, with the latter securing high-profile sponsorships with Premier League clubs Arsenal and Southampton.

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Earlier this month I was in London for ICE 2023. As usual, it was packed to the hilt. The scale of the event is testament to the burgeoning gaming industry.

But given the broader macro-climate, was it all just smoke and mirrors? Or are we a real canary in the coal mine?

Halfway through Q1 of 2023, one would be forgiven for thinking that the macro-climate and the access to funding and capital looks ominous for everyone. The borrowing costs set by the US Federal Reserve are a good barometer for global trends across the investing sector.

In November, the US Fed increased the target range for the federal funds rate by 0.75% to 3.75%-4%. Across the world, the cost of capital has continued to rise rapidly to combat high inflation. This impacts the spending and investment decisions made by all households and businesses.

Over the last year, we have seen the SPAC market largely fizzle out, reducing the likelihood of large-scale M&A unless the acquiring business has significant cash on the balance sheet.

When opportunity presents itself

For VCs however, the outlook looks more optimistic — especially in the gaming space when viewed as a portal into web3. While outside money for regulated gaming ventures is becoming more difficult to source, some investors certainly have dry powder ready to deploy when the time is right.

What does that mean in practice? Firstly, all parties are waiting for valuations to come back down to more realistic levels. For more speculative or early-stage companies or those chasing growth markets like the US and Asia, there’s been a significant decline in fast-moving investors, and probably for the good.

Two years ago, most VCs were imbued with a severe fear of missing out. Today, they are looking for fewer, more targeted opportunities, with most re-trenching to what suits “their fit”. But this is no different to other industries, including software firms who are used to easier money.

Yolo Investments general partner Tim Heath: “This downturn is healthy in the sense that the fundamentals were being ignored for too long. I am optimistic that the strong will survive and thrive.”

However at Yolo we’re confident there is an opportunity gap in this sector at the Seed to Series A level, to provide active growth capital to ventures with a proven business model who would benefit from a long-term partner to provide ecosystem support.

We especially think that firms able to bundle their gaming and entertainment offer into broader web3 services, such as banking and education, have a greater chance of success in this market. Jambo, an African web3 and fintech firm in whose recent $30m Series A round we participated, is a great example.

The company will use the funding to hire the engineers needed to build a web3 super app that will enable Africans to trade crypto, buy and sell NFTs, experience play-to-earn crypto games, bank themselves and access educational web3 applications.

Companies like this, bringing real value to growth markets, will not just survive the crypto and VC winters — overhyped though these seasons are — but thrive into the long-term.

End of the road

On the healthy side, I think a lot of the products and companies that are genuinely overhyped have seen their day over the past year, and we’re not likely to see more of them.

Without naming names, these are companies that used to raise easy money only to go on to become the fiftieth entrant to saturated markets — probably only attaining 2–3% market share. Their kind won’t be seeing the light of day again for a long period of time.

The strong use cases on the other hand will only get stronger. Social gaming, for example, has an extraordinary ability to leverage the network effects of traditional social media (Facebook, Twitter, etc.), and will only get more competitive in 2023.

Long-term value

I fundamentally believe in the long-term value proposition of the gaming sector. Games provide a form of escapism, immediate gratification, engaging content, and can provide a crucial portal into life changing applications in education and payments.

This downturn is healthy in the sense that the fundamentals were being ignored for too long. I am optimistic that the strong will survive and thrive, and we will be a more successful industry for it.

In short, there is a wealth of talent out there building innovative products so it would be wrong to say they are all overhyped. Like life, sourcing funding is often a matter of luck and good timing.

Some products might be great solutions in their own right — but their true value won’t be appreciated by investors intent on developing ecosystems that don’t cater to their unique place in the market.

The message is — don’t give up. For those who can stay the course through 2023, great things might still come to those who wait. See you all at ICE 2024.

This post first appeared on Medium.com.

Tim Heath draws upon two decades of experience within the iGaming and emerging technologies sectors as GP of Yolo Investments. An early adopter of Bitcoin in 2013, he was founder and CEO of the Yolo Group (formerly the Coingaming Group) until 2020. The group operates leading crypto gaming brands Bitcasino and Sportsbet.io, with the latter securing high-profile sponsorships with Premier League clubs Arsenal and Southampton.

Cryptocurrency markets had a rough ride in 2022, but bitcoin has started the new year strongly, leading some analysts to suggest the worst of the bear market is over.

The price of bitcoin has risen by 28% so far in January, climbing above the $21,000 level for the first time since the well document collapse of FTX in November.

This marks the best start to a new year since 2020, when bitcoin witnessed a 31% increase before the outbreak of the Covid-19 pandemic.

Regaining $1tn capitalisation

Over the past week, the largest digital asset, bitcoin, has surged and has moved out of the $16,500 to $17,000 range that had been the norm in trading since early December.

This has resulted in bitcoin reaching its highest levels since the FTX collapse, where it hit a two-year low of around $15,500.

The increase in bitcoin’s value has also contributed to the overall value of digital assets, with the combined market cap surpassing $1tn, according to CoinGecko data.

For context, ether, the second-largest token, has surged more than 20% in the last seven days.

However, the market is still far from the $3tn recorded in November 2021, before the onset of the “crypto winter”.

Optimism over the economy appears to be partly responsible for bitcoin’s rally.

Recent positive indicators in the US jobs report and consumer-price index data have given rise to the hope that inflation is decreasing, which in turn has led to the belief that the Federal Reserve will slow down on its interest rate hikes.

The tighter financial conditions had limited the demand for risky assets and negatively impacted both stocks and cryptocurrencies.

Expert opinions

Analysts, however, are divided on whether the current bull run can be sustained, with some arguing the market is still too volatile to make concrete predictions.

Others believe the recent resurgence in bitcoin’s value is a legitimate sign of a long-term recovery.

Les Borsai, chief strategy officer at crypto asset management company Wave Financial, told US financial newspaper Barron’s: “What we’ve experienced in recent days in the bitcoin and crypto market is the strongest sign yet that we’ve come close to hitting a bottom for this cycle.

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