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Bitcoin (BTC): investment, gambling or pyramid scheme? We analyze

Bitcoin (BTC) fell sharply in recent months. As always when prices fall, criticism of the crypto industry and BTC in particular plays up again. In particular, the accusation that buying Bitcoin is not investing but gambling or (even worse) that BTC is a pyramid scheme rears its head again. Time for an analysis.

Before we start our analysis, many will be curious about the live Bitcoin (BTC) price and live crypto prices. You can find these 24 hours a day and thus all weekend on the site of Tradeincrypto.com.

Is Bitcoin (BTC) gambling instead of investing?

For this analysis, we’ll start with a common killer: “Buying Bitcoin (BTC) is gambling rather than investing.”

To make a good analysis, we must first know what gambling is. The definition of gambling is: “A person bets money on playing a game after which a random outcome causes him or her to win or lose.” Because you as a player have no influence on the outcome of a gambling game, it is also called a game of chance.

If we put investing in Bitcoin along this criterion we quickly see that this statement is not correct. After all, you are not playing a game when you invest in Bitcoin (BTC). Unlike a game (where the duration is fixed either in time or through gameplay), you decide when you buy BTC and when you sell it again. Therefore, you do have influence on the outcome of the investment. After all, a price loss only becomes a real loss if, at that moment, you decide to sell.

Profit rate gambling and Bitcoin (BTC) compared

In addition, an important feature of gambling is that the payout percentage is always below 100%. Because the percentage is not linear (if you play on a slot machine and lose a lot of money, the payout percentage can easily be at 30%, while it can be many hundreds of percent if you win the jackpot with a 10 Euro stake) you can win or lose, but statistically, every game of chance pays out less than is wagered.

This is significantly different with Bitcoin (BTC). If we look at the annual returns from 2011 through 2021, we see that with two exceptions, the exchange rates made positive returns every year. The best year was 2013 with a return of 5,507%. The least positive year was 2015 with a 35% return.

The two exceptions were 2014 and 2018. Then the largest crypto currency lost 58% and 73% in value respectively. Over the period 2010-2021, the average BTC return per year was 1,576% and the total return was a whopping 18,912%.

With this, the conclusion is obvious that investing in Bitcoin (BTC) has nothing to do with gambling in any case.

Is Bitcoin (BTC) a pyramid scheme?

Another common criticism is that Bitcoin (BTC) would be a pyramid scheme. On the website of the AFM (Autoriteit Financiële Markten, Dutch regulator of investments) we find 6 criteria to assess whether an investment is a pyramid scheme. We list the criteria and put Bitcoin (BTC) along the measuring stick.

High return at little risk: with Bitcoin (BTC), there is no guaranteed return and anyone who invests in this currency knows that there are risks involved.
The investment offered is not under supervision: this is true at the moment. It is true that crypto exchanges are supervised and must apply for a license. However, this serves to ensure that the exchanges take measures to counter money laundering and terrorism. Protecting the interests of investors is not part of the requirements for a license. This is going to change, by the way. Both Europe and America are working hard on legislation to protect crypto investors.
Stable distributions: everyone knows that BTC are not stable distributions. The price can move enormously (be volatile) and as an investor you decide when you want to be paid out.
Request for reinvestment: when you sell your crypto coins, there is no one to request or pressure you to reinvest.
Professional organization: A professional selling organization is the opposite of the Bitcoin (BTC) system. Here, on the contrary, the organization is decentralized and every transaction is transparently recorded on huge numbers of computers. In addition, the BTC was not developed with the goal of becoming an investment instrument.
Complicated strategies: when investing in Bitcoin, you can make the strategies as easy or complicated as you want.

In short, with a score of 1 out of 6 (where it is hard to blame Bitcoin for not having the law ready), BTC is certainly not a pyramid scheme.

So where does this bad image about BTC come from?

As far as we can analyze, there are 4 main reasons why this comparison between Bitcoin, gambling and pyramid schemes is still often made. We also list these.

The high volatility (volatility) of the stock price. For example, during the first Mt Gox hack (in 2011), the price dropped from $32 to a penny in one day;
The enormous returns. As we saw, there are huge returns to be had with investing in crypto. No other legitimate investment offers such high returns;
The fact that Bitcoin was opposed to regular structures and was anonymous raised many questions. It was also used by criminals, which gave it a negative reputation.
Ignorance. Many people do not know how to invest responsibly in crypto and think that a guaranteed profit machine awaits. This, of course, is nonsense. Also, people who hear news often do not know enough to appreciate this news. For example, someone recently said that he had invested EUR 7,000 in Bitcoin last year and that “now only a third of that was left. Insiders know that in the meantime the currency has also set a price record at over $64,000.00. If he had had knowledge at the time, he would have taken steps to get out earlier and take his profits.

Is investing in BTC gambling or participating in a pyramid scheme?

By now we can conclude that it is easy to prove that Bitcoin (BTC) is not a gambling game (game of chance) or a pyramid scheme.

However, we do know that investing in Bitcoin is a risky investment where past results do not guarantee the future. We also know that the probability of return is much lower if you want to get “rich quick” without a chance of success.

Staying up to date on the latest stock price developments?

You can always follow the developments yourself with our WANT crypto analyses or the background articles and previews on the crypto market and Bitcoin. Of course, you can also follow the live quotes 24 hours a day if you want to stay informed in real time. Are you interested in other investments besides crypto? Then our weekly Monday morning price forecast might be a reading tip. “Please note: We never give financial advice, so our contributions can’t be interpreted that way either. Always do your own research and decide on rational grounds if, when, what and how much you want to invest in.”