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# Is investing in crypto assets a negative-sum game?
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.
---
title: Investing in crypto assets is a negative-sum game
description:
category:
- claim: y
- featured: y
- interview: n
- deepdive: n
claim:
- evaluation: YY
- confidence: HH
---

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.
# Claim steel-manned

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).
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.

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).
# Evidence of claim being made

See [assets](../concepts/assets.md) comparison chart for comparison of crypto assets to conventional investments.
Diehl, Stephen. [@smdiehl]. Tweet. Twitter, 18 March 2021. https://twitter.com/smdiehl/status/1372495197926490114.

## References
> ...miners and market makers... extract about $12,000,000/day from the pool.
> This cash outflow changes the dynamics of investing in bitcoin from being a zero sum game, into a negative sum game.
> There are strictly more losers than winners, and if you sum over all participants the entire scheme *destroys wealth* rather than creating it.

1. Krugman, Paul. 2018. ‘Bitcoin Is Basically a Ponzi Scheme’. The Seattle Times 30.
1. ———. 2013. ‘Bitcoin Is Evil’. Paul Krugman Blog (blog). 28 December 2013. https://krugman.blogs.nytimes.com/2013/12/28/bitcoin-is-evil/.
1. ———. 2021a. ‘Technobabble, Libertarian Derp and Bitcoin’. The New York Times 21.
1. ———. 2021b. ‘The Brutal Truth About Bitcoin’. The New York Times 21.
1. Taleb, Nassim Nicholas. 2021. ‘Bitcoin, Currencies, and Fragility’. ArXiv:2106.14204 [Physics, q-Fin], July. http://arxiv.org/abs/2106.14204.
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.
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.
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.
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.
1. Diehl, Stephen. 2021. ‘The Intellectual Incoherence of Cryptoassets’. 7 November 2021. https://www.stephendiehl.com/blog/crypto-absurd.html.
1. ———. n.d. ‘The Case Against Crypto’. Accessed 17 February 2022. https://www.stephendiehl.com/blog/against-crypto.html.
1. Stivers, A. 2019. ‘The Alchemy of a Pyramid: Transmutating Business Opportunity Into a Negative Sum Wealth Transfer’. http://ssrn.com/paper=3497682.
McCauley, Robert. ‘Why Bitcoin Is Worse than a Madoff-Style Ponzi Scheme’. Financial Times, 22 December 2021.

> Another big difference between bitcoin and a Ponzi scheme is that the former is, from an aggregate or social standpoint, a negative sum game.
> ...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.

# Evaluation: True (high confidence)

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.

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).

# References

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).

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).

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).

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).

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).

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).

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/).

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).

Krugman, P. (2021b) ‘The Brutal Truth About Bitcoin’, _The New York Times_, 21.

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).

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).

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).