1.9 KiB
Investing in crypto assets is a negative-sum game
Investing in crypto assets is a negative sum game 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.
Since crypto assets are investments 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. However as an investment crypto assets have no income-cashflows 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. All money won by speculation is ultimately money that is equally lost by another participant.
This is comparable to the analogy of a game of poker and other gambling 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.
Investing in crypto assets is statistically guaranteed to lose money for almost all market participants because as investments they have no income-cashflows. This differs drastically from productive-asset such as stocks and bonds.
See assets comparison chart for comparison of crypto assets to productive asset.