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# Is investing in crypto assets a negative-sum game?
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---
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Investing in crypto assets is a [negative sum game](../concepts/zero-sum-game.md) as defined in game theory and economics. Negative sum games result in a net loss across participants and multiple losers associated with every one winner.
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title: Investing in crypto assets is a negative-sum game
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description:
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category:
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- claim: y
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- featured: y
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- interview: n
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- deepdive: n
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claim:
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- evaluation: YY
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- confidence: HH
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---
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Since crypto assets are [investments](../concepts/security.md) the purpose of buying a crypto asset is to buy it at a lower price and sell it at a higher price to generate a return denominated in a [real currency](../concepts/currency.md). However as an investment crypto assets have no [income-cashflows](../concepts/income-cashflows.md) therefore the only money that exists to pay out investors is money that is brought in by later investors. This makes the entire scheme a [zero sum game](../concepts/zero-sum-game.md). All money won by [speculation](../concepts/speculation.md) is ultimately money that is equally lost by another participant.
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# Claim steel-manned
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This is comparable to the analogy of a game of poker and other [gambling](../concepts/gambling.md) games The only money that can be won in a poker game "pot" provided by the players of the card game. The act of playing poker does not generate any money, it simply redistributes to participants according to a game of chance. If the "house" or casino takes a percentage of the pot on every round of the game played then the size of the pot must decrease over time. This turns the zero-sum game into a negative-sum game which admits a negative [expected return](../concepts/expected-return.md). See also the [greater fool theory](../concepts/greater-fool-theory.md).
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Crypto assets have no [income-cashflows](../concepts/income-cashflows.md) therefore investing in crypto assets is a [negative sum game](../concepts/zero-sum-game.md) as defined in game theory and economics. Negative sum games result in a net loss across participants and multiple losers associated with every one winner.
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Investing in crypto assets is statistically guaranteed to lose money for almost all market participants because as investments they have no [income-cashflows](../concepts/income-cashflows.md). This differs drastically from [productive assets](../concepts/productive-asset.md) such as [stocks](../concepts/stock.md) ,[bonds](../concepts/bond.md) and [real-estate](../concepts/real-estate.md).
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# Evidence of claim being made
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See [assets](../concepts/assets.md) comparison chart for comparison of crypto assets to conventional investments.
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Diehl, Stephen. [@smdiehl]. Tweet. Twitter, 18 March 2021. https://twitter.com/smdiehl/status/1372495197926490114.
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## References
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> ...miners and market makers... extract about $12,000,000/day from the pool.
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> This cash outflow changes the dynamics of investing in bitcoin from being a zero sum game, into a negative sum game.
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> There are strictly more losers than winners, and if you sum over all participants the entire scheme *destroys wealth* rather than creating it.
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1. Krugman, Paul. 2018. ‘Bitcoin Is Basically a Ponzi Scheme’. The Seattle Times 30.
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McCauley, Robert. ‘Why Bitcoin Is Worse than a Madoff-Style Ponzi Scheme’. Financial Times, 22 December 2021.
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1. ———. 2013. ‘Bitcoin Is Evil’. Paul Krugman Blog (blog). 28 December 2013. https://krugman.blogs.nytimes.com/2013/12/28/bitcoin-is-evil/.
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1. ———. 2021a. ‘Technobabble, Libertarian Derp and Bitcoin’. The New York Times 21.
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> Another big difference between bitcoin and a Ponzi scheme is that the former is, from an aggregate or social standpoint, a negative sum game.
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1. ———. 2021b. ‘The Brutal Truth About Bitcoin’. The New York Times 21.
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> ...the negative sum in the bitcoin game is in tens of billions of dollars and rising at over a billion dollars per month. If the price of bitcoin collapses to zero, the gains of those who sold would fall short of the losses of holders by this growing sum.
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1. Taleb, Nassim Nicholas. 2021. ‘Bitcoin, Currencies, and Fragility’. ArXiv:2106.14204 [Physics, q-Fin], July. http://arxiv.org/abs/2106.14204.
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1. Cembalest, Michael. 2022. ‘The Maltese Falcoin: On Cryptocurrencies and Blockchains’. https://privatebank.jpmorgan.com/content/dam/jpm-wm-aem/global/pb/en/insights/eye-on-the-market/the-maltese-falcoin.pdf.
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# Evaluation: True (high confidence)
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1. Bindseil, Ulrich, Patrick Papsdorf, and Jürgen Schaaf. 2022. ‘The Encrypted Threat: Bitcoin’s Social Cost and Regulatory Responses’. 7 January 2022. https://web.archive.org/web/20220107084533/https://www.suerf.org/docx/f_88b3febc5798a734026c82c1012408f5_38771_suerf.pdf.
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1. Corradi, Fiammetta, and Philipp Höfner. 2018. ‘The Disenchantment of Bitcoin: Unveiling the Myth of a Digital Currency’. International Review of Sociology 28 (1): 193–207. https://doi.org/10.1080/03906701.2018.1430067.
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Since crypto assets are [investments](../concepts/security.md), the purpose of buying a crypto asset is to buy it at a lower price and sell it at a higher price to generate a return denominated in a [real currency](../concepts/currency.md). However as an investment crypto assets have no [income-cashflows](../concepts/income-cashflows.md), the only money that exists to pay out investors is money that is brought in by later investors. This makes the entire scheme a [zero sum game](../concepts/zero-sum-game.md). All money won by [speculation](../concepts/speculation.md) is ultimately money that is equally lost by another participant. Once you take into account the exchanges and miners taking a rake on the game, the entire structure becomes strictly negative-sum.
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1. Shri T Rabi Sankar. n.d. ‘Cryptocurrencies – An Assessment’. Reserve Bank of India. Accessed 2 March 2022. https://rbi.org.in/Scripts/BS_SpeechesView.aspx?Id=1196.
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1. Diehl, Stephen. 2021. ‘The Intellectual Incoherence of Cryptoassets’. 7 November 2021. https://www.stephendiehl.com/blog/crypto-absurd.html.
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Investing in crypto is comparable with poker and other gambling games. The only money that can be won in a poker game "pot" is provided by the players of the card game. The act of playing poker does not generate any money, it simply redistributes to participants according to a game of chance. If the "house" or casino takes a percentage of the pot on every round of the game played then the size of the pot must decrease over time. This turns the zero-sum game into a negative-sum game which admits a negative [expected return](../concepts/expected-return.md).
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1. ———. n.d. ‘The Case Against Crypto’. Accessed 17 February 2022. https://www.stephendiehl.com/blog/against-crypto.html.
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1. Stivers, A. 2019. ‘The Alchemy of a Pyramid: Transmutating Business Opportunity Into a Negative Sum Wealth Transfer’. http://ssrn.com/paper=3497682.
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# References
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Bindseil, U., Papsdorf, P. and Schaaf, J. (2022) _The encrypted threat: Bitcoin’s social cost and regulatory responses_. Available at: [https://www.suerf.org/docx/f_88b3febc5798a734026c82c1012408f5_38771_suerf.pdf](https://www.suerf.org/docx/f_88b3febc5798a734026c82c1012408f5_38771_suerf.pdf) (Accessed: 25 February 2022).
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Cembalest, M. (2022) _The Maltese Falcoin: On Cryptocurrencies and Blockchains_, p. 31. Available at: [https://privatebank.jpmorgan.com/content/dam/jpm-wm-aem/global/pb/en/insights/eye-on-the-market/the-maltese-falcoin.pdf](https://privatebank.jpmorgan.com/content/dam/jpm-wm-aem/global/pb/en/insights/eye-on-the-market/the-maltese-falcoin.pdf).
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Corradi, F. and Höfner, P. (2018) ‘The disenchantment of Bitcoin: unveiling the myth of a digital currency’, _International Review of Sociology_, 28(1), pp. 193–207. Available at: [https://doi.org/10.1080/03906701.2018.1430067](https://doi.org/10.1080/03906701.2018.1430067).
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Diehl, S. (2021) ‘The Intellectual Incoherence of Cryptoassets’, 7 November. Available at: [https://www.stephendiehl.com/blog/crypto-absurd.html](https://www.stephendiehl.com/blog/crypto-absurd.html) (Accessed: 25 February 2022).
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Diehl, S. (no date) ‘The Case Against Crypto’. Available at: [https://www.stephendiehl.com/blog/against-crypto.html](https://www.stephendiehl.com/blog/against-crypto.html) (Accessed: 17 February 2022).
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Krugman, P. (2013) ‘Bitcoin Is Evil’, _Paul Krugman Blog_, 28 December. Available at: [https://krugman.blogs.nytimes.com/2013/12/28/bitcoin-is-evil/](https://krugman.blogs.nytimes.com/2013/12/28/bitcoin-is-evil/) (Accessed: 5 March 2022).
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Krugman, P. (2018) ‘Bitcoin is basically a Ponzi scheme’, _The Seattle Times_, 30. Available at: [https://www.seattletimes.com/opinion/bitcoin-is-basically-a-ponzi-scheme/](https://www.seattletimes.com/opinion/bitcoin-is-basically-a-ponzi-scheme/).
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Krugman, P. (2021a) ‘Technobabble, Libertarian Derp and Bitcoin’, _The New York Times_, 21. Available at: [https://www.nytimes.com/2021/05/20/opinion/cryptocurrency-bitcoin.html](https://www.nytimes.com/2021/05/20/opinion/cryptocurrency-bitcoin.html).
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Krugman, P. (2021b) ‘The Brutal Truth About Bitcoin’, _The New York Times_, 21.
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Shri T Rabi Sankar (no date) _Cryptocurrencies – An assessment_, _Reserve Bank of India_. Available at: [https://rbi.org.in/Scripts/BS_SpeechesView.aspx?Id=1196](https://rbi.org.in/Scripts/BS_SpeechesView.aspx?Id=1196) (Accessed: 2 March 2022).
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Stivers, A. (2019) ‘The Alchemy of a Pyramid: Transmutating Business Opportunity Into a Negative Sum Wealth Transfer’. Available at: [http://ssrn.com/paper=3497682](http://ssrn.com/paper=3497682).
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Taleb, N.N. (2021) ‘Bitcoin, Currencies, and Fragility’, _arXiv:2106.14204 [physics, q-fin]_ [Preprint]. Available at: [http://arxiv.org/abs/2106.14204](http://arxiv.org/abs/2106.14204) (Accessed: 25 February 2022).
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