CRYPTOCURRENCY TRADING : INVESTMENT OR GAMBLING

Dr. S. G. Gavade

Assiatant Professor & Head,

Department of Economics,

Raje Ramrao Mahavidyalaya, Jath, District Sangli

Money and currency

Money

Is an intangible asset

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Currency

Is tangible

Money : Features

• Durability
• Transferability
• Divisibility
• Scarcity
• Fungibility (exchangeability)

Cryptocurrency

A cryptocurrency (or crypto currency) is a digital asset designed to work as a medium of exchange that uses strong cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets.

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The decentralized control of each cryptocurrency works through distributed ledger technology, typically a blockchain, that serves as a public financial transaction database

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Bitcoin, first released as open-source software in 2009, is generally considered the first decentralized cryptocurrency. Since the release of bitcoin, over 4,000 altcoins(alternative variants of bitcoin, or other cryptocurrencies) have been created.

The legal status of cryptocurrencies varies substantially from country to country and is still undefined or changing in many of them. While some countries have explicitly allowed their use and trade.

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A cryptocurrency is a tradable digital asset or digital form of money, built on blockchain technology that only exists online. Cryptocurrencies use cryptography to verify and secure transactions, hence their name.

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• Cryptocurrency is digital currency. It began with the founding of Bitcoin about a decade ago, when a bunch of developers wanted to create a way to pay each other digitally. They also wanted to keep third parties like banks and credit card companies out of the picture.
• Cryptocurrency is driven by blockchain technology. A group of so-called “miners” compete to verify each transaction so that there is no way the transaction can be tampered with or retracted. Each transaction is also recorded digitally so that there can’t be any double payments or other mix-ups.
• Cryptocurrency is fast and cheap. Because there isn’t an intervening organization verifying every little transaction, bureaucratic fees and delays are essentially eliminated. Those paying with cryptocurrency might be charged a small fee to process the payment, while those receiving cryptocurrency funds simply have to possess a digital wallet to accept the payment, which is settled almost instantaneously.
• Cryptocurrency is private. No personal information needs to be exchanged between parties when dealing with cryptocurrency coins. In addition, only the cryptocurrency involved in the transaction needs to be put at stake, unlike how credit and bank card accounts are exposed when you are using those entities.
• Cryptocurrency is unregulated. The fact that there is no organization overseeing cryptocurrency offerings is both one of its greatest benefits and greatest flaws. It is wonderful how it puts personal finance back in the hands of individual. But it also means that there is a target on cryptocurrency, and it makes governments and financial institutions suspicious of it.

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Investment and Gambling

Investing is basically when you put money into an asset, and then hope to make more money in the future.

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Gambling is a business, where businesses trick some people’s brains into thinking that they could make money putting their money into their “games”, when in reality the longer those people play, the more their chance of winning will turn in favor of the house, and the player’s more than not lose money.

Problem gambling is defined as gambling that is disruptive or damaging to you or your family, or interferes with your daily life

Compulsive gambling, also called gambling disorder, is the uncontrollable urge to keep gambling despite the toll it takes on your life

Investing in Cryptocurrency - Issues

• Changing Value: As we have demonstrated, the values of cryptocurrency can change at any moment. If you put a certain type of coin into a gambling site and that coin suddenly surges in value, it won’t be you who benefits from it. That’s why it’s a good idea to set only a certain amount for gambling purposes.
• Less Choice: We stated earlier that there is a great demand for cryptocurrency users by gambling sites. But not all sites that have made that switch just yet. And those who have might not yet accept payments by some of the up-and-coming coins (Bitcoin is your safest bet), thereby limiting your options.
• Tax Confusion: You do have to claim significant winnings from gambling websites on your yearly taxes in most jurisdictions. That can be difficult to figure out when you are dealing with cryptocurrency. It might require you to hire someone specifically for the task, which can cut into your winnings.
• House Edge: Even though there might be temporary lulls, it seems like the trajectory for most cryptocurrency coins is heading upward over the long haul. When you are dealing with gambling websites, you are at a disadvantage because of the house edge that is involved in most gambling websites. You’ll need great savvy and luck to keep that cryptocurrency from dwindling away.

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Crypto Trading and Gambling (online) : Similarities

• High speed�Both crypto and some online gambling products are fast-paced. The value of crypto is volatile, and can boom or bust quickly.
• High event frequency�For example, people can stake money on crypto or slots relatively quickly.
• Repetitive�Checking in on crypto value changes on the apps can be habit-forming.�
• Chance-based�Buying crypto is very high-risk. For example, values can change a lot based on unpredictable factors like influencer tips.
• 24 hour availability�Unlike traditional trading, crypto (and online gambling) is available 24/7.

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Crypto currency trading and Gambling

• Cryptocurrency trading and stock trading and investing were most likely to be considered as�gambling with probabilities of ~56% and ~48% respectively
• Albeit surveying a sample of non-problem gamblers different forms of trading were still�considered to be gambling
• Trading and gambling share structural characteristics
• >50% of regular gamblers had engaged in cryptocurrency trading in the span of a year
• Trading can act as a form of gambling with some forms of trading being closely associated with an increased risk for problem gambling behavior
• Blocking access to more volatile forms of trading may be beneficial for the recovery journey of problem gamblers �

Source : Patroklos Androulakis-Korakakis & Nick Michalopoulos, (gamban.com ) and James Steele (Solent University, Southampton, UK ) “Are different types of trading a potential form of gambling?” � https://pure.solent.ac.uk/ws/portalfiles/portal/32228241/Public_Report_Is_trading_a_form_of_gambling.pdf

• Mosenhauer et al (2021) found that motivations of individuals to trade excessively may “be troublesome” and that excessive trading and thus the associated losses may be driven by a behavioural dependence.

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• Delfabbro et al (2021) examined the relationship between gambling, problem gambling and the intensity of crypto-currency trading. Moreover, found that engagement in gambling and stock trading was linked to cryptocurrency trading. It is found that problem gambling scores were positively linked to cryptocurrency trading.

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• Mills & Nower (2019) found that over 50% of regular gamblers have engaged in cryptocurrency trading. Trading cryptocurrencies is linked to high-risk stock trading. In addition, trading cryptocurrencies is linked with risk for problem gambling, depression and anxiety.

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Source : Mosenhauer, M., Newall, P.W.S., & Walasek, L. (2021). ‘The stock market as a casino: ssociations between stock market trading frequency and problem gambling’ Journal of Behavioral Addictions. doi: 10.1556/2006.2021.00058

Delfabbro, P., King, D., Williams, J. and Georgiou, N., (2021). ‘Cryptocurrency trading, gambling and problem gambling’, Addictive Behaviors, 122, p.107021 ��Mills, D. and Nower, L., (2019). ‘Preliminary findings on cryptocurrency trading among regular gamblers: A�new risk for problem gambling?’, Addictive Behaviors, 92, pp.136-140.

Thank you