NEW YORK (MarketWatch) — If poker wasn’t already enough of a gamble, players are increasingly placing bets with the most speculative currency of them all: bitcoin.

Poker websites have started accepting bitcoin from U.S. players to skirt federal legislation that makes it illegal to transfer funds associated with illegal Internet gambling, at a time when bitcoin advocates are striving to distance the virtual currency from illegal activities.

The move to bitcoin in online poker started after the Department of Justice seized three of the biggest poker websites in the U.S. on April 15, 2011, a day known as Black Friday in the poker community. Bitcoin poker has gained momentum this year alongside the expanding profile and rising price of bitcoin, open-source software that has been heralded as both a virtual currency and protocol for payments. Bitcoin started the year trading around $13 and surged above $1,000 in late November.

Federal authorities aren’t sure if it’s a currency, a security, or something else altogether. Designation aside, bitcoin is increasingly used in very traditional purchases, from buying a house to getting a beer, and lately, playing a few hands of Texas Hold ‘em.

Patrick, a 24-year-old graduate student who plays poker online through the bitcoin poker website SealsWithClubs and who asked for his last name to be withheld, became interested in bitcoin after online poker’s Black Friday.

“A lot of us were looking for an alternative and bitcoin seemed like the next logical move because of the nature of the payment processing,” he said. “[It’s] instant, fairly anonymous, can be used in a number of fairly interesting ways.”

Bitcoin advocates such as the Winklevoss twins and Jeremy Allaire, chief executive of the bitcoin company Circle Internet Financial, have sought to portray bitcoin as a technology that will revolutionize the transfer of money, akin to how the Internet transformed the way information is shared. Bitcoin companies have lined up venture capital funding from well-established names like Accel Partners, Union Square Ventures and Andreessen Horowitz.

The SealsWithClubs website only uses bitcoin. SealsWithClubs

And there’s cautious optimism from U.S. regulators. At a Senate hearing in November, a Treasury official said that cash, not bitcoin, is still “the best medium” for money laundering, a statement that seemed to move the digital currency out of law enforcement’s crosshairs. New York bank regulators are considering allowing a license for companies that want to use virtual currencies such as bitcoin.

Two of the most notable federal closures this year of virtual-currency businesses — Silk Road, a bitcoin-only online drug market, and alleged money-laundering site Liberty Reserve — have gone a long way to whitewash its reputation.

Yet bitcoin’s unsavory association with illegal activities refuses to disappear even as its proponents take it closer toward the financial mainstream. A second version of Silk Road has appeared. And the so-called anarchist wing of the bitcoin world has rallied against what they see as increased regulation. Cody Wilson, better known as the creator of the 3-D-printed gun, has lambasted government regulation as a “straitjacket” for bitcoin and launched a crowdfunding campaign to create a service that would make bitcoin transactions more anonymous.

‘No banking. Only bitcoin.’

The online poker sites embrace this connection with a world that operates without the blessing or even direct interaction with traditional financial institutions.

Satoshi Poker is a bitcoin poker website that references the pseudonym for the creator (or creators) of bitcoin, Satoshi Nakamoto. Satoshi Poker

The SealsWithClubs website has a banner that proclaims “No banking. Only bitcoin.” The homepage greets users with a scantily clad woman holding the word “upgraded” surrounded by poker chips emblazoned with the letter “B” for bitcoin.

The bitcoin poker website Satoshi Poker, which was founded in 2013, features a photo of person wearing the Guy Fawkes, V is for Vendetta grinning mask that’s become a symbol of anti-establishment, anti-financial institution protesters like those involved with the Occupy movement. The name of the website likely comes from Satoshi Nakamoto, the pseudonym of the person or group of people who created bitcoin.

BitsPoker, another bitcoin poker website founded this year, greets players with a website banner that BitsPoker is “Bitcoin Poker – Evolved.”

Of course, the process of acquiring bitcoin isn’t always divorced from cash; one way to acquire the virtual currency is to use Internet-based exchanges like Mt. Gox or local swaps like Satoshi Square to trade currencies like the dollar for bitcoin. Another way is called mining, which is the cryptographic process that creates bitcoin.

Bitcoin’s surge in prices this year has stoked interest in these sites.

An image from the front page of the SealsWithClubs website. SealsWithClubs

The owner of the bitcoin poker website SealsWithClubs, who goes by the pseudonym Freemoney, started the site after Black Friday in 2011, according to Bryan Micon, who represents SealsWithClubs in a marketing capacity. (The website’s unusual name came from a former programmer for the site, and it stuck.)

At first, turnout was so low that the owner sat at a virtual poker table by himself. “Now [the site] peaks at 500 simultaneous players each night,” said Micon.

“2013’s massive increase [in price] threw bitcoin into the limelight. Our poker site is a brilliant metric of that,” he said, referring to rise in simultaneous players.

Of websites that accept U.S. players, SealsWithClubs ranks eighth in the average number of real-money cash players over seven days, according to the website PokerScout.com. Its seven-day average of 110 players is sandwiched between two websites run by Caesars Interactive Entertainment in New Jersey and Nevada that accept real-money bets, according to PokerScout.

$5 billion pot for online poker

And it’s easy to see why there’s an incentive to offer online poker. The combined gross win from online poker in Nevada, New Jersey and Delaware — the only three states where online poker is legal — is expected to be $200 million in 2014, according to data provided by H2 Gambling Capital.

Worldwide interactive poker’s gross win is forecast to rise to 3.24 billion euros ($4.43 billion) in 2013 from 3.17 billion euros ($4.33 billion) in 2012, the H2 data show. The online poker sector peaked in 2010 before the crackdown in the U.S. at 3.73 billion euros ($5.09 billion), according to H2 data.

Has Bitcoin hit a (Chinese) wall?

Internet gambling is possible in the three states because gambling is primarily governed by state law, says Gregory Gemignani, a shareholder at the law firm Lionel Sawyer & Collins in Las Vegas. On top of state legislation is a federal layer of gambling laws, which help the states enforce their laws with interstate activities, he added.

One of the federal laws is the Unlawful Internet Gambling Enforcement Act of 2006. “If you are involved in something that is illegal gambling and it is on the Internet, then the funds transferred associated with that are also going to be illegal, unless it’s exempted under the statue,” said Gemignani. “It’s sort of a piling-on statute.”

This is the law frequently cited by bitcoin poker advocates, since funds transferred in bitcoin are outside of the financial system.

Another applicable federal law is the Illegal Gambling Business Act, which has been used against online poker websites. It defines an illegal gambling business as one that violates state law, has five or more people and makes $2,000 in a single revenue day or is in continuous operation for thirty days or more, said Gemignani. Under the statue, if a person is involved on the supply side of an illegal gambling business as defined above — including conducting, managing, financing, owning or operating — that’s illegal under federal law, he added.

“It’s a pretty powerful statue,” he said. And as with everything, the prosecution comes down to motivation. “The DOJ has volumes and volumes of U.S. laws to enforce. Where does online poker come in? It’s a really low priority thing to enforce,” Gemignani said.

Read more about bitcoin on MarketWatch:

Overstock.com to accept bitcoins

Why investors don’t want bitcoin to be a currency

Bitcoin fever is a fool’s gold rush: David Weidner