Is Crypto Just Gambling in Disguise?

You may have heard the chatter: Is crypto just gambling? In this video, Kirk David Phillips, CPA, CMA, as well as a Certified Fraud Examiner (CFE) and Certified Bitcoin Professional (CBP) breaks it down for the crypto-curious.

Watch the Kirk & Robin Show: Is Crypto Investing Just Gambling in Disguise? for a lively discussion on this topic

The elements of gambling 

Kirk starts off by explaining the distinction between investing and gambling, starting with the three elements of gambling, according to Nelson Rose, whose paper Gambling and the Law®: An Introduction to the Law of Internet Gambling soundly addresses this topic. Rose states for gambling there must be:

• Consideration - Skin in the game, or money put into something
• A prize - Something of value to be won
• Chance - The possibility of winning or losing
  
  

Related: UK Crypto Gambling

So, betting vs. investing: What's the difference?

Betting and investing do share some similarities. The consideration piece applies to both gambling and investing because you have to put money in to play the game. Gambling and investing also both involve taking a chance. With the stock market, for example, stock prices can go up or down, and you could end up with nothing, the same with gambling.

However, in investing—and let’s specify crypto investing here—there's really no "prize" in the traditional sense, though you could argue the prize is being savvy enough to invest early in something that takes off. But what really differentiates the two?

• Prize and chance factors - When gambling, you're competing for a single or multiple prizes and can calculate the probability of the outcome.
• Investing has less calculable probability - With investing, you estimate risk-adjusted returns and look at performance over time to decide whether to stay in the game.

Is crypto gambling?

Technically, there is a distinction between gambling and investing. But behaviorally, investing can look like gambling, especially given the wide range of crypto assets available. Let’s look at the meme coin craze, for example:

• The meme coin mindset - Fueled by greed, people try to get in early on a coin that's pumping, hoping to exit before the market crashes.
• Pump and dump schemes - Many meme coins are launched by people trying to make a quick buck, and 99% of them don't make it.

This gives crypto a bad name, especially when the news media focuses on the negative aspects and stories of people trying to get rich quick.

Crypto investing: Think like an investor

If you're an investor, you may be familiar with investing in REITs, 401ks, and the stock market. Investing in crypto is really no different than investing in these other asset classes. Digital assets are a new asset class with many subsets.

Bringing a savvy, financial, long-term investing mindset to crypto will lead to success, just like in traditional finance.

Crypto mindset matters

Whatever mindset you bring to crypto will determine your outcome, so watch out for the "get rich quick" mindset.

• FOMO - 90% of people operate with fear of missing out, aping in near the top without doing any research.
• Emotional chaos - They check their returns daily, and when the market crashes, they panic and pull their money out at a loss.

They never stick with it long enough to see success and then declare that crypto is a scam.

Adopt a crypto mindset

With so many things to invest in for the long term, it's important to remember that there is massive value in crypto's brand new technology.

While scams and other negative aspects taint the space, this is not unusual with new technologies.

To adopt a crypto mindset, be sure to check out the Crypto Mindset^TM course.

John and Jenny: A cautionary crypto tale

This cautionary tale from Reddit highlights the importance of personal responsibility. John, who had been successful in crypto, told his friend Jenny that he would guide her on her crypto journey. Instead of taking him up on his offer, Jenny went and invested $30,000 (her life savings) into one meme coin and lost it all. Then she turned around and blamed John. The replies on Reddit were not kind to Jenny, pointing out that she was 100% responsible for her own decisions.

To dig deeper into this topic, be sure to watch the full video on why crypto investing is not the same as gambling. And share your thoughts and experiences in the comments. We'd love to hear from you!

As always, your goal is to get a Crypto Bullseye™.