Cryptocurrency Trading and the Risk of Gambling Addiction
New Research Doesn’t Call Crypto Trading Gambling — But a Trader’s Own Behavior Can Reveal Whether It’s Become One
Investing is an interesting topic, especially when it comes to the technology of the future: cryptocurrency. Many people have gotten rich quickly, turning modest investments into returns 10 to 20 times over within just a few years, in cryptocurrencies such as Bitcoin and Ethereum. That’s because crypto acts as a tool for transferring money without an intermediary, isn’t controlled by any single organization, is verifiable, and prevents data manipulation or forgery through blockchain technology. This type of financial technology is known as decentralized finance, or “DeFi.”
But in this article, we’ll review research on the behavioral science side of crypto trading versus stock trading. This research was conducted in 2021 by psychology researchers from Australia and Canada, who found that the trading behavior of certain groups of crypto traders shares many similarities with gambling.
Crypto Trading Behavior That Resembles Gambling, for Example:
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Buy and sell decisions are rarely based on rational, evidence-based information.
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Buy and sell decisions tend to be based on hoped-for outcomes or short-term news, rather than the underlying value of the asset.
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Traders tend to speculate in highly volatile assets.
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Short-term trading, such as day-trading.
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Returns tend not to depend on analytical skill or trading ability.
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Trading with borrowed money.
There is also earlier research — five separate studies conducted in Australia between 2012 and 2018 — pointing in the same direction: that day-traders engage in various forms of gambling with concepts similar to daily stock trading, such as sports betting and poker, at higher rates than non-day-traders. As many as 91% of day-traders reported also engaging in other forms of gambling.
The concept behind crypto trading most closely resembles sports betting, in that bettors have some information available to help predict outcomes — such as choosing a team with strong players or a high win rate — compared with crypto trading, such as choosing a popular coin with a large trading base connected to other activity in the online world, like NFTs; buying in early; “buying the dip”; or sometimes feeling like they have inside information or secret knowledge that others don’t, giving them a perceived edge. This differs from other forms of gambling, such as slot machines, which rely 100% on luck.
In this study, researchers recruited 299 participants, who had to have gambled or traded crypto at least once a month over the past year. The research examined participants’ behavior across three areas:
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Participants’ crypto trading behavior
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Participants’ other gambling behavior
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A Problem Gambling Severity Index (PGSI) questionnaire assessing the severity of gambling-addiction traits
Results 1. Crypto Trading Behavior
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Traders made an average of 3.1 trades per day
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The average amount traded per transaction was US$713.8 (approximately 23,500 baht)
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Traders checked their monitors an average of 14.5 times per day
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Traders spent approximately 2.3 hours per day trading
2. Relationship Between Crypto Trading and Other Gambling: Crypto Traders Also Engaged in the Following Forms of Gambling
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Motor racing betting: 33.1%
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Sports betting: 72.9%
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Slot machines: 51%
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Card games: 60.5%
Trading Frequency
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Once a month: 42.1%
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2–3 times a month: 24.1%
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Once a week: 10%
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2–3 times a week: 16.7%
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Every day: 7%
Overall, 87% of participants who traded crypto also engaged in at least one other form of gambling.
Gambling-Addiction Risk Scores: 3. Severity Assessment of Gambling-Addiction Traits
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Among those who both traded crypto and bet on sports, 30.7% showed moderate risk of gambling addiction, and 30.7% also showed a high level of gambling-addiction behavior.
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Among those who traded crypto exclusively, 30% showed moderate risk of gambling addiction, and 9.5% showed problematic gambling-addiction behavior.
In Summary
Even among people who traded crypto exclusively, with no other gambling at all, as many as 9.5% still showed behavior consistent with gambling addiction, compared with a baseline rate of about 0.5–2% in the general population (roughly 9 times higher than the general population). Among those who also engaged in other forms of gambling, that figure rose to 30.7%.
The researchers suggest this may be because crypto trading is new and attracts a large number of inexperienced retail traders, causing traders who lack a disciplined trading framework to develop behavior that resembles gambling addiction. Since most of the study’s participants were retail traders, the researchers couldn’t say whether larger, institutional traders would show the same gambling-like patterns as retail traders do. The researchers also offered an interesting additional note: some coins may amount to outright scams, or may not even use blockchain technology to create the coin at all. Another scheme found in the crypto coin market is the “rug pull.”
A “rug pull” refers to yanking a rug out from under someone standing on it, causing them to fall flat on their face. In the crypto world, a rug pull is a scheme in which a developer creates a new coin, luring investors with the promise of a future opportunity. Once enough investors have put money into the market, the developer disables the coin, delists it from the market, and disappears with the massive sum of money investors put into that coin — all at once.
Additional Notes From the Reviewer
Finally, this research doesn’t mean crypto trading itself is gambling — but a trader’s own behavior can reveal whether their trading habits have crossed into gambling addiction. If your behavior matches these patterns, you should seek counseling quickly, before the damage grows too large to fix.
For anyone who wants to address gambling addiction, or to quit drugs or enter drug treatment, Day One Rehabilitation Center is a residential rehabilitation center that treats gambling addiction too, with a treatment program well suited to supporting the mental and physical health of people in treatment.
Sources
https://pubmed.ncbi.nlm.nih.gov/34171583/
https://www.sciencedirect.com/science/article/abs/pii/S0306460321002069
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