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📈 Is trading cryptos the same as gambling? 🎰

By mabc95 | Cryptoplus | 19 Nov 2021


With this question I do not want to discuss the reputation of Bitcoin and cryptocurrencies in general, I am a true believer of the power of a blockchain-driven economy. The question is aiming to reference the misconception behind cryptos, that if they are scam, or Ponzi scheme, that is money from thin air, that is speculative, that is a bubble, and, especially, that is just like gambling, how true is that?

 

1. A MATTER OF DEFINITIONS

 

If we take a look at what Merriam-Webster has in its pages about gambling, we can see that it is the “practice or activity of risking money or other stakes in a game or bet”, and, as a cross-reference, bet is “a choice made by consideration of probabilities''. Basically, saying that putting some money in Bitcoin, Ethereum, or any currency of your choice, whether it is to HODL or to trade, is just like playing dice or roulette, or aiming for your favorite team victory. It is true that the movements of the cryptographic assets obey a certain probability framework, but from tendencies we can deduct future behaviours within a degree of accuracy and precision, which cannot be accomplished at lucky games.

 

Stating that, we can see that, by definition, trading or HODL cryptos should not be considered as gambling, but that would be a little rigid point of view if you ask me. We, as humans, tend to act and behave a little bit differently from what could be written in paper, there are sociological and psychological aspects about specific trading approaches that look very similar to those related with gambling and gambling addiction.

 

2. WHAT HAVE THE RESEARCHERS FOUND?

 

Mills & Nower (2019) conducted a preliminary research about addictive behaviors (the same name as the journal) and they found out that over 50% of what they consider regular gamblers also traded cryptocurrency in the last year. They also characterized the archetype of trader related to gambling: Young hispanic males with high incomes (just to clarify, it’s not a discrimination issue, is just what the trends revealed from the surveys, and I’m also a young hispanic male… but my income is about low average 😥).

 

This study was more like a comprehensive description rather than an explanation why, but it is important to notice that they kind-of-related those behaviours with the risk and high-risk management. Also they suggested weak links with depression and anxiety. Good luck for use, two years later, Delfabbro et al (2021) conducted a sort of a part II of this research.



In the same way as Mills & Nower did, the Problem Gambling Severity Index (PGSI) was used. And they found out the same thing, people with higher scores on the PGSI tend to engage more in crypto trading activities. They considered two big factors. The first one, is the novelty of cryptocurrency, which is an attractive feature for speculative and high risk investors. Basically it is like diving into an ocean of uncertainty, which, I would think is related with adrenaline craving and the post rush crash.

 

The second factor was the “structural similarity” between speculation and gambling, and they talk about staking assets in pursuit of big returns with little information and little strategy skills. They don’t say this but I think there’s a subjacent psychological factor: people addictively engaged in these activities tend to think they can control either the odds or the market, like they were the owners of the lucky or the decisions of thousands and millions of traders around the world.

 

I like the disclaimer at the end of their paper where they say: 

 

“The findings should not be taken to mean that crypto-currency is a harmful activity and is not profitable for some people, but that the risk may be elevated when it is undertaken by people who are also engaged in gambling and who may, therefore, approach both activities in a similar way.” (Delfabbro et al, 2021)

 

Basically, they are clarifying that cryptos are NOT a bad thing, what’s bad is to approach them as they were random assets instead of financial assets that behave (most of the time) with the market pace. But it is interesting to think that if it is risky when people that are predominantly gamblers start to trade… What happens when actual trades start to gamble with the assets?

 

A similar question was the driving force of a research made by Gong et al (2021). Based on previous studies asking who, what, where and why, they were curious about when do traders decide to make a gambler approach rather than a fundamental/technical one. What kind of conditions are supposed to be held in order for the traders to start playing dice instead of looking for trends, momentum, volatility and volume?

 

The simple conclusion extracted from the study was that traders tend to invest in “lottery stocks” when the market is in a downtrend or losses, so… when they are in red numbers. They start to perceive risk differently, and prefer to invest a little amount of money with the expectation of high return (that can cover the losses of their current portafolio) over the loss of that little amount of money. Sounds a little bit like the approach of some people on social networks buying small quantities of memecoins, hoping it will make a 1000x path and then take profits.

 

3. FINAL THOUGHTS

 

What is important to consider from all this… Is that cryptocurrency by itself is not gambling, it’s the way certain people approach and consider their movements, whether it’s using fundamentals, technichals, financial… or by pure randomness and hunches. Having stated all this, what are your thoughts about it? Do you consider trading cryptocurrencies or cryptocurrencies themselves as gambling?

Thanks again for reading my stuff! I hope it has been enjoyable!

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mabc95
mabc95

Bachelor in Chemistry and a scientist since I was born in 1995. Education enthusiastic | Sports passionate | Music lover | Financial noobie. CH&MB. Venezuelan living in Colombia.


Cryptoplus
Cryptoplus

Basically talking about crypto and (maybe) combining it with (at least a little bit of) science, engineering, sports, comics, and almost anything I will come up with

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