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Exploring the Connection Between Cryptocurrency Trading and Gambling: Behavioral Insights and Socioeconomic Factors

Synopsis While many studies have examined the structural similarities between financial speculating and gambling over the past ten years, as well as the potential for harmful behavior to transfer from one activity to another, research on the connections between cryptocurrencies and gambling has only recently started. This is apparent given that cryptocurrencies are becoming more and more relevant to society. This study examined the use of cryptocurrencies and gambling by a representative sample of 3864 Germans, based on a 2019 poll. The study's objectives were to identify characteristics that set single gamblers apart from cryptocurrency users and users of both, as well as to learn more about the socioeconomic backgrounds and behavioural tendencies of the latter group. In comparison to the other groups, it was discovered that cryptocurrency users who also gamble are mostly young, male, well-educated, and wealthy. They also report significantly greater levels of domain-specific knowledge, ideological motivation, and trust-perceptions about cryptocurrencies. The behavioral patterns of three different user groups were identified through the use of cluster analysis. These groups differ in terms of how much they engage with cryptocurrencies on a mental, proactive, and financial level. The fact that a sizable portion of this technologically competent user base is regarded as heavy users suggests possible concerns with over-involvement. Researchers and authorities can now better comprehend the phenomenon of cryptocurrencies and consumers' psychological participation thanks to the findings.

1. Overview

The growing popularity of cryptocurrencies and the growing focus that blockchain technology is receiving in the political, social, and economic spheres indicate that the disruptive potential of this technology could potentially have a discernible impact on regulators, players, and the gambling industry. Notwithstanding these possibilities, little is known about the functions of cryptocurrencies and their wide range of consequences for users, regulators, and business participants. According to Rauchs et al. (2018), cryptocurrencies are system-native digital assets that can be used for a variety of tasks in the economic coordination mechanisms of blockchain systems, such as paying for services related to maintaining the immutability of the network's transaction database. The majority of cryptocurrencies are based on blockchain technology, which is a technical infrastructure with a distributed database that is cooperatively managed, updated, and secured by its network members (Ingold & Langer, 2021; Steinmetz et al., 2020). Additionally, the technology provides gamblers with a new avenue of access (Gainsbury & Blaszczynski, 2017; Gainsbury et al., 2016). For example, it allows users to access "decentralized casinos" (Scholten et al., 2020), which are gambling applications that are built on blockchain infrastructure, use cryptocurrency transparently, and allow users to gamble in an unregulated, pseudo-anonymous environment. However, in terms of volume, these decentralized casinos have not yet attracted much attention from bitcoin users. In addition to the technology's disruptive technical potential, a growing body of research concentrates on the other, more common, intersection of cryptocurrencies and gambling: the link between cryptocurrencies and gambling itself. Most of these research look at the two activities' structural similarities, and their users' potential mere-exposure effects (Zajonc, 2001). Furthermore, according to recent research, owners and users of cryptocurrencies may also be significantly influenced by psychological factors, such as faith in the technology and ideological motivation (e.g. Steinmetz et al., 2021). Despite these results, the literature on the interactions between cryptocurrencies and gambling has not yet acknowledged the psychological components of cryptocurrency use and how they might relate to gambling. Given the growing significance of cryptocurrencies in Western societies, such as Germany (Mora et al., 2021), the growing craze for stock-trading applications (Robinhood, 2021; Stewart, 2020), and the fact that many of the companies that provide these apps also offer cryptocurrency trading (Robinhood, 2018, for example), there is an increasing need to look into the relationship between cryptocurrency usage and gambling in general, as well as the relationship between trading cryptocurrencies and gambling in particular.

2. Structural Similarities and Behavioral Parallels Between Cryptocurrency Trading and Gambling: Insights from Recent Studies

The idea that trading cryptocurrencies and gambling are related is based on how similar the two activities are structurally: The basic framework of gambling (Delfabbro et al., 2021) is similar to the scenario in which highly volatile assets are traded with little information and in the hope of uncertain but large gains, where stakes are placed on uncertain outcomes, though they are primarily influenced by chance (Delfabbro et al., 2019). The following are thought to be comparable motivations for engaging in any of the two activities: The desire for large profits, according to Mills and Nower (2019), explains why cryptocurrency trading and problem gambling are related. Consistent with these results, the Financial Conduct Authority (FCA; FCA, 2019) of the United Kingdom revealed that, according to a survey of 2132 British participants, the primary reasons people buy cryptocurrencies are to gamble (31%), diversify their portfolio (30%), or expect rapid profits (18%). The techniques used by users of bitcoin trading and gambling have also been proven to be similar. Senarathne (2019) looks into the parallels between high-risk gambling and cryptocurrency trading. The author comes to the conclusion that trading cryptocurrencies can be compared to gambling, with the allure of potentially large payouts acting as a driving force. Moreover, excessive cryptocurrency traders exhibit the same behavioral characteristics as gamblers, such as chasing losses (Meng & Fu, 2020). The findings of Delfabbro et al. (2021) corroborated those of Mills and Nower (2019), who discovered a strong correlation between cryptocurrency trading and problem gambling. They demonstrated that the Problem Gambling Severity Index (PGSI; Ferris & Wynne, 2001, pp. 1–59) scores and gambling involvement are valid indicators of the intensity of cryptocurrency trading.