16 lines
2.2 KiB
Markdown
16 lines
2.2 KiB
Markdown
# Investing in crypto assets is a negative-sum game
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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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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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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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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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See [assets](../concepts/assets.md) comparison chart for comparison of crypto assets to conventional investments.
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## References
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* [@taleb_bitcoin_2021]
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* [@fry_negative_2016]
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* [@stivers_alchemy_2019]
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* [@reijers_blockchain_2018] |