Whatever your opinion, cryptocurrency is here to stay.
The industry is growing rapidly. The activity has become a symbol and argument point and is central to many current political debates regarding centralization, privacy, and how to transfer value between individuals. For psychologists like me, cryptocurrency can be a risky behaviour that needs to be studied to understand its impact on consumers. This includes understanding how to categorize it. What is it? Is it gambling, speculative trading, or an investment?
Crypto purchasing has much in common with other speculative trading and gambling forms. This is the key aspect of gambling, as people often place money or something of value on an uncertain outcome. The tokens or coins will rise in value, and people hope to lose their money if they fall in price. Bitcoin has also been a valuable asset that has increased in value steadily over the past decade. Its cost will range from a few dollars to a few hundred to $US69,000 by 2021. As I write this article, it is more than $23,000. This is eight times more than the lows of three years ago. Cryptocurrency has a paradoxical nature. Some elements may imply gambling or high-risk speculation. Others would point to an appreciation asset class that has vastly outperformed the gold price over the past 15 years. This is why I find this area fascinating and difficult to classify. It’s also what keeps crypto researchers and enthusiasts interested. Explaining where it could fit in each category or at the intersection of all three might be instructive.
Let’s begin with gambling. Gambling is defined as anything that has a large degree of chance. Does this apply to crypto? Clearly, during the crypto mania of 2021, people invested large sums of money in “meme coins” or speculative projects they didn’t know much about. Meme coins, such as Dogecoin, are tokens that have no fundamental purpose but are used for marketing purposes based on the catchy name or motif. These are often animals, such as dogs and cats, which don’t usually have a practical use. This behaviour is often based upon limited research and a high probability of winning or losing. It looks almost like gambling. The price curve usually follows a “crash-and-burn” pattern.
This behaviour is similar to betting on an unresearched horse in a race. However, there are some important differences between conventional betting and this. One important distinction is that social media largely drive crypto price action. Social media influencers not only hype and pump speculative meme tokens, but often their roots are in social media. Alert meme token investors can discover that there may be a strategy to gain an advantage over other buyers.
Social media platforms like Discord,
Telegram, and Reddit often provide information and hint about new token drops. If one is: (a) a member or frequent visitor to these communities and (b) aware that tokens with larger “communities” likely have a ready market, then there may be strategies that can be used to select meme coins to purchase early. Although it’s unlikely that the crypto market is completely chance-driven, likely, most people who speculate on meme coin speculation don’t do any research. It is essentially a form of gambling.
The difference between crypto-currency and conventional markets is that they operate 24 hours a day and on weekends. This allows people to participate in the activity even when they should be sleeping.
Crypto isn’t always gambling.
It is almost always speculative. When there is economic uncertainty, such as in 2022, crypto prices can often move with speculative stocks, most notably the NASDAQ Index, and vice versa. Even Bitcoin, which has proven its resilience and ability to rise from many deaths in mainstream media over the past decade, can be volatile. Bear markets can cause it to lose as much as 80% of its value, hurting the financial well-being of anyone with a short-term investment horizon. Other tokens and coins also lose 90-99% of their value in bear markets, and many go extinct or become worthless.
Swing traders are skilled at placing orders for price movements and can make large gains by analyzing candles, support and resistance levels. However, the average retained investor may need more preparation for the sheer volume of information available in this market. The market is constantly changing, and prices can change quickly. New projects are being introduced to the market every day, and people are faced with overwhelming choices. There are many thumbnails on social media from influencers encouraging people to purchase tokens that are said to go up to 100X.
The difference between crypto-currency and traditional markets is that they operate 24 hours a day and at weekends. People can participate in the activity even when they should be sleeping. People who participate in the activity report that they spend a lot of time looking at the balance and charts of their portfolios. Portfolios can drop as high as 40% in just a few days, even during a bull market. It is possible to see many token prices rising parabolically in these times. This keeps you alert to potential missed opportunities. crypto casino holders will have to make decisions about when to sell their tokens when they begin to rise quickly. This creates a lot of psychological tension based on well-known psychological principles that relate to people’s regret after making decisions.
The research shows that people regret what they do (e.g. selling) more than acts of omission. However, both of these actions are strong in crypto markets. This encourages people to buy tokens with rising prices or not sell when they’re well ahead. This is a concern because such biases have been identified in gambling, and more so in those who are gambling addicts. We and others have found that cryptocurrency seems to correlate with both variables. Because of this, I think that crypto-related problems will become a more serious problem for help services designed to assist people with gambling issues.
Despite these attributes,
Cryptocurrency is still emerging as an asset class that is being paid attention to by large-scale institutional investors. These people see cryptocurrency as an investment, not just short-term speculation. These people are exposed to crypto’s most intriguing and serious sides. This highly volatile and suspicious market attracts speculative and impulsive financial activity. These markets have been able to move over a longer period and are highly predictable. Bitcoin’s value increases rapidly over 4 years after it has been halved (when the mining rewards are split). People aware of this knowledge buy in bear markets and then sell when there is a rise in the market. These people will endure years of poor price action; the project collapses, endless negative news (“Bitcoin dead”) in mainstream media, and the ridicule of their friends and families.
Ironically, these qualities, often missing in stereotypical portrayals of crypto trading (patience, reliance, and long-term perspective), are the key strategy to success in these markets. The long-term investor purchases Bitcoin when it is all bad news and sells when it rises. Crypto investing, practised by people who have been successful over many decades and continue to invest in the market, is not for speculators but investors. Cryptocurrency has the unusual distinction of being classified under all three headings. Although it is always speculation (Bitcoin is constantly under regulatory attack), it often appears like gambling but is a long-term investment.