Cryptos & Casinos Have Similarities!
Updated: Sep 15, 2021
When I walk into a casino I get a bit of a annoying feeling and have a tough time enjoying myself. If I do partake, I never go past $20 and if I double my money I try to quit and walk out. This hardly ever happens because I usually play till it’s all gone, hanging on to that distant hope of getting my $20 back or getting ahead. I often wonder if it’s just me, am I an anomoly, or is this ill feeling common to others? Is it intuition, or some deeper state of consciousness? I think it’s just a bit of knowledge about casinos and how they work.
Why are there so many grown adults in here passing time? The blinking lights and alarms, the maze of VLTs and gaming tables, people in blank gazes almost in trances, everyone trapped in the middle, and usually hundreds of feet from the exit doors? Even if you want to get out, you need to walk through the maze of temptations first. They give you free drinks while you’re playing, just to slightly cloud your judgement. There’s restaurants, bars, shows, and lots of attractions to capture your attention and your money, so you feel less inclined to escape. How the hell does a business afford all this, and what’s the purpose?
Casinos have one very simple strategy, to make more than they pay you. In fact, their average target is to make 10-20% of your money from gaming only, and there are laws in many jurisdictions to cap their gains and somewhat protect you ... THANK GOD! In this light, they can be viewed as recreational or the equivalent of theme parks, and not the legalized thieves (alleged) they really are. Every game they have is designed to this end. Some make more, some make less, but collectively they all stay ahead and easily achieve their targets, and the numbers are astounding. Millions of dollars a day in some of the bigger casinos. Casinos raked in approximately $450B in the USA alone in 2018, or an estimated $400-$500 per each American visiting Casinos in that year. They get you vaguely interested with free offerings like game cards, drinks, food, then addict you with various dopamine triggers like colors, flashing lights, dinging, alarms, and the odd, often-very-noisy win to let everyone know it’s possible. Then, by your own choice, either quickly or slowly, they strip you of your hard-earned cash. They give just enough back to you over time, or create just enough hype around you, to keep you playing and forget about your losses or the risks. Some people have their favorite games and VLTs, the one’s they believe are winners. Some stand back and watch who’s machine is dinging the most, and wait to get on those. Everyone has their percieved systems for winning. Sure you might get lucky. But if you do, it just reinforces your gambing behaviours. You might go high stakes with those winnings, buy yourself a $500 dinner, $500 in Casino shows or merchandise, or $500 a night hotel room, or simply keep playing till it’s gone. Either way they capture their profit margins, and either way, you lose any gains you made. Ever wonder why casinos give you a free, high priced room for a few days if you do win really big? They want you to stay and play and pay, to recover their losses. They’ve done the math, they know the odds, and they always win. It’s their business, and they are good at it. People rarely leave ahead from a casino, because they are designed to make you lose or capture your wins, one way or the other.
Every person I ever talked to, who frequents casinos or plays VLTs regularly, will tell you about the memorable times when they won big. They may inflate those stories a bit (or a lot) by explaining how they rarely left these places behind on money. If they did walk out behind, it was usually that "one time"? In reality, they never tracked their performance over time or looked up the actual statistics. If they did they’d know. They had simply justified what they were doing, were happy doing it, and had no real sense of pain from it. The wins versus the losses. The house always wins! Might not be from you that day, but they are always ahead and have lots of parlour tricks to stay ahead.
These people I know weren't all what I would call addicted, it was an occasional outing and they all had their limits, but they exampled some of those behaviours and tendencies of the people who spend their whole days and weeks in casinos chasing the big win, or thinking somehow they they were paying their bills with their winnings. I’m sure you can call it entertainment if you set some limits. And there is usually a lot of interesting things going on in Casinos worth taking in, so I’m not totally against them. Like the shows and dining options they offer. But there are a lot of people who go beyond their limits in these venues and don’t even realize it’s happening. It’s gambling, which by definition is “wagering money against an uncertain outcome, in the hope of winning”.
Back to Bitcoin and it’s similarities to casinos? Right now there is a lot of hype around cryptos. There is tons of advertising and word-of-mouth about the easy money being made if you buy and trade cryptos in the market on various trading platforms. People are talking about people they know getting rich over night, getting multi-thousand dollar paycheques monthly, and you start to wonder about missing out on an opportunity. Sounds familiar? Hype, flashing signals and alarms going off, perceptions of everyone getting rich around you, and you’re missing out? Cryptos have some eerie similarities to casinos in this regard, but this is a bit different animal. To me they somewhat resemble pyramid schemes. Cryptos pay no interest or dividends. Their face value is only driven by market capitalization and the number of crypto units in circulation. So far, they have a history of being highly volatile and driven by buyer/seller frenzy. If you do own them, you always need to have someone who is willing to pay you more to make money, which keeps driving the unit value higher. It’s really as simple as that. As long as someone out there will pay more for your cypto than you paid, you’ll make some money. But now it’s getting really hard to look away, as cryptos are gaining some acceptance as a monetary (store of value) option in the world. The volatility risks are very real, and it may go up 100% or drop 100%... it’s a major dice roll but one many are willing to take right now to hedge their investment bets. It’s impossible to average into these types of investments with this kind of volatility. Cryptos may never get full recognition as a currency without first stabilizing their value. After all, who wants to own a bitcoin for the price of a new Camero, only to sell it down the road under duress to buy a used Corolla?
One bitcoin today is upwards of $48k, and it’s dropped to ~$36k in the last month. That’s a lot of volatility! They’ve created bitcoin divisions now, e.g. the Satoshi, with a value of 0.00000001 of one bitcoin. This allows the bitcoin frenzy to continue, accelerate, and allows investors with less money to risk to enter the market. When it started being tracked on the TSX, one bitcoin was around $500 CAD each, and if you had a spare $5k laying around, took a flier, and bought 10 bitcoins, you’d have $450k if you cashed them in today. Nice return, but highly speculative when they started out. Who knew it would get into a frenzy during covid? Some speculated and some got lucky. Now there are other crypto players like Etherium, that are trading at a fraction of the price of Bitcoin. One Ether is around $1600. When compared to one bitcoin what a deal ... right (FOMO)? Taking a chance and making big money is likely to make you attempt it again and again (casinos). How can you not be confident in your ability to pick winners when it happened once (VLTs)? Maybe you’ll throw it all in and really get ahead (poker)?
Be careful, buyer frenzy and overconfidence is the bane of many an investor. Warren Buffet’s famous quote, “be greedy when others are fearful, and fearful when others are greedy” still applies today. Many go straight to zero or near-zero over night being overconfident and greedy. And if you display greediness, it’s most likely you can’t control your emotions and will also be very fearful in a down market, which leads to big losses.
A friend of mine described bitcoin investors like young turkeys who haven’t seen Christmas yet, getting fat and really enjoying life! Then ... the axe falls.
*** Cryptos and Casinos have similarities ***