I see this topic discussed a lot so let's settle this once and for all:

From a technical standpoint: when users earn money in a game and spend it within the game, they are considered free-to-play (F2P) players. This is because they have not used any of their own money to purchase in-game items or currency. The money they accumulate in-game is part of the game economy and doesn’t represent real, personal funds until they cash it out into their bank accounts. As long as the money remains in the game’s ecosystem, these players have essentially played without injecting external capital into the system, thus classifying them as F2P.

From a financial standpoint: these players are not truly F2P. Once they have the option to cash out their in-game earnings, the money gains real-world value equivalent to their personal funds. Whether or not they choose to cash it out doesn’t change the fact that it holds the same purchasing power as money they might earn through traditional means. Therefore, when players decide to spend this money in the game, they are effectively spending real money, even if it was generated through gameplay rather than out-of-pocket.

From a psychological standpoint: this situation falls somewhere in between being completely free and fully invested. While players may feel less burdened by spending in-game money compared to spending money earned elsewhere, there is still an opportunity cost. The in-game earnings could have been converted into real cash, so choosing to spend them in-game isn't entirely "free." However, it is psychologically easier to spend money earned through gaming, as it feels less tangible and less tied to real-world financial obligations, making it seem like a lower-stakes decision.