I wouldn't say it's unlawful or unfair to limit or to close accounts of such bettors. Or even to do that to just good bettors if it's clearly stated in ToS previously agreed by the customer at least. AFAIK fiat sportsbooks are doing it, but unlike those offshore crypto sportsbooks they will never keep customers' funds, and ask dubious extra KYC.
Some crypto sportsbooks will have no problem with users' KYC for receiving their funds, and to take their money when they are losing, even when amounts are way higher than what the user is usually betting and could be obviously critical for him, but weirdly they need highly private and specific documents when the user made some profits in order to withdraw his funds. It looks a scammy practice bad for reputation of crypto ecosystem for me.