High risk. High return. Many investors look at the cryptocurrency realm using this myopic lens. One that looks at decentralized currency as a mere investment vehicle, failing to see the underlying principle of the lack of centralized control.
Cryptocurrencies have been the most volatile financial asset in the past decade, but its loyalists do not regard the rise and fall of Bitcoin’s price to be an indication of its worth. Proponents do not view the coin market in a constant valuation race with the stock market. In fact, they view it as a means to replace the traditional economic system and take back financial control.
When the price of Bitcoin shot up from $500 to almost $20,000, many crypto-newbies ventured into the industry to simply make some money with no underlying belief. The nature and volatility of the cryptocurrency industry has given birth to the presupposition that many investors in the crypto-realm are avid-gamblers. The correlation between the two was studied via a survey by the Centre for Gambling Studies at Rutgers University School of Social Work. However, the survey itself left a lot to be desired as the correlation presented was thin and the conclusion was questionable, to say the least.
Presenting the argument that ‘gambling,’ being correlated with cryptocurrency trading points to a relationship between the two that is thinly constructed, especially when looked at the pool of people considered to be in the gambling fray. The Centre for Gambling Studies denoted people who have engaged in any form of gambling i.e. online betting to in-land casinos at least once a month for a year in the aforementioned category. From a minimal standpoint, considering a relatively small group of 876 adults, with once a month for a year gambling frequency and a wide range of gambling options does not show a habit or an addiction, much less a relationship.
Out of the pool, only 50 percent of the respondents dove into cryptocurrency trading in the past year, with no indication of the quantity or frequency of trades. The study also failed to mention the type of digital assets traded, stablecoins that track their corresponding fiat values do not pose a gambling hazard especially in comparison to low market cap ‘pump and dump’ altcoins. This sliver of a connection between the two also looks very weak, given the significant rise and fall of the global coin market in the past year.
The volatility of the collective cryptocurrency market in 2018 was at an all-time high, attracting risk-savvy and risk-averse investors alike. With the December 2017 crypto-boom serving as an anticipatory mirror of yet another rise, hesitant investors were further buoyed to buy digital assets. Despite this hanging investment carrot, only 50 percent of the avid gamblers invested in the coin market, showing the false equivalency in this correlation.
Devin Mills, the lead author of the study does admit that for “some people,” cryptocurrency trading is an investment opportunity, there is no denying this claim, especially given the growing popularity of the crypto-pegged investment funds that are now mainstream.
He further equates crypto-trading to show people “gamble on horses or sports or slots,” which presents the same medium but fails on the objective. Betting on sports or at the tracks are driven by sheer greed of monetary gains and not value generation. The rush of a full-house is not the same as a coin surging on CoinMarketCap, and does not point to a direct tie between the two.
Furthermore, Gambling sans principle does not derive pleasure from the nature of the underlying asset being risked, it derives pleasure from the asset’s mere change in value. Chance is the only motivator for a gambler, with no skill, effort or study involved; random events result in random rewards, unlike skilled investing.
Drawing the correlation between crypto-trading and gambling was not the intention of the study. It was initially crafted to study the use of virtual currencies as a payment method for online casinos. The study then veered into defining cryptocurrency trading from a narrow gambling lens than through the larger dimension of decentralized currency.
Mills also highlights the culpable infrastructure of crypto-trading that would lust the gambler. Agreed, the crypto-space has made several strides in making trading easier, but if the infrastructure is the argument, nothing is easier than traditional stock market investing.
With end-to-end assistance, a plethora of assets tranches and classes to invest in, stock traders could also be edged closer to the gambling crowd, keeping in mind the similarities between the two fields. The volatility of the stock market is not as dominant as that of virtual currencies, but if the high-risk stocks are analyzed, it does draw an inference to the fluctuations of cryptocurrencies.
Lia Nower, a co-author of the report, attested the same as she drew parallels between high-risk stock investors and crypto-traders, hence debilitating the isolated correlation of cryptocurrency investors to that of gambling.
Furthermore, on studying the responses between the two broad categories of gambling cited by the study, it was found that gambling in casinos draws a negative relationship with crypto-trading and gambling in sports and high-risk stocks draws a positive one. This clear difference in the types of gambling leading to an antithetical trading pattern suggests that the relationship between the two is further blurred.
The study by the Centre for Gambling Studies draws a false equivalence between the two varied concepts, right from their definition of gamblers. As mentioned earlier, the study looked at people who gambled once a month for a year, which denotes on-and-off gamblers, rather than habitual ones. Even with the severity of the sample reduced, just 50 percent of an 876 pool responded to having traded cryptocurrencies, with no further metrics provided and in an enticing year as well.
THE FINAL CALL
Gamblers’ mindset looks at everything as a game of value, of numbers that constantly change and blur the objective from vision. Anything, according to them, can be chanced up and sold for millions, not merely virtual currencies, stocks, commodities, goods, and services anything can be gambled.
Satoshi Nakamoto created the first coin to bypass currency controls, cross geographical borders and push back against controlling governments, with no drive to create an investment vehicle, despite the claims. Cryptocurrencies, even today, are not seen as an asset class but, by many, as a tool for financial freedom.
The equivalence between the two might point to a weak correlation between gambling and any constantly changing asset class, not just cryptocurrencies, but it falls well short of a conclusion.
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