In The Cloud

Bitcoin is better for betting

If you want to profit from betting in the long term, the challenge is traditionally framed as overcoming the bookmaker's margin, but what about inflation eroding your profit?

To give yourself the best chance of achieving a profit from gambling it should be self-evident that minimising that margin is paramount - in other words, getting the best odds.

What’s interesting is that the discussion - clearly predicated on the broader objective of profit generation - stops there, ignoring the wider context of the ability of the currency you are betting with to function as a reliable store of the value your betting might create.

Inflation & Purchasing Power

Betting in fiat (by which we mean traditional currencies like USD and EUR) essentially accepts the detrimental impact of inflation, which has been an eroding pressure since the abandonment of the Gold Standard in 1914.

If, for example, you were successfully generating a 2% return on investment (ROI) in 2019 from your bets, made in Venezuelan Bolivar, you should afford yourself a well-earned pat on the back, but your profit would have been erased by the plummeting value of the Bolivar before you had a chance to withdraw and try to spend it.

Admittedly, very few people will be betting in the currency of countries currently struggling with hyperinflation - Venezuela, Zimbabwe and Argentina - you might as well use Monopoly money. However, the story is similar, if less dramatic for the world’s reserve currency:

The US Dollar has lost 95% of its purchasing power since 1914, which put in a different way, means that it costs 26 times more to buy something now as it did then.

Declining Dollar Value since 2013

Your Winnings Aren't Immune to Inflation

Of course, there aren’t any bettors around to worry about the associated decline in purchasing power of the proceeds of USD bets they might have made for example on the Miracle Braves to win the 1914 World Series. 

The point however, should be obvious; if you accumulate fiat through gambling - which is tax exempt - you’re robbing Peter to pay Paul, or put another way, beating the bookie only to see Uncle Sam or the Old Lady of Threadneedle Street erode the value of those winnings in the long run.

If you accumulate fiat through gambling - which is tax exempt - you’re robbing Peter to pay Paul, or put another way, beating the bookie only to see Uncle Sam or the Old Lady of Threadneedle Street erode the value of those winnings in the long run.

Economists argue that the right amount of inflation is a necessary evil, encouraging consumption, discouraging businesses from hoarding cash, so given that USD is the global reserve and all other currencies are subordinate to it, it's a moot point. 

If gambling isn’t your primary source of income, that inflation may be offset by wage inflation (though that isn’t a universal rule), but our assumption here is that you want to make money from gambling.

 So, if you are worried about inflation eroding your winnings, you can of course invest them in something that performs better than inflation, like gold, art or the stock market.

But what if you could bet with a currency that is easier to move than dollars - because it respects no borders - has unforgeable scarcity and a disinflationary mechanism to build towards an absolute fixed supply - eventually eliminating inflation altogether; nor does it have any central control, but instead is maintained by complex mathematics and proof of work? And what if the unit value of that currency had risen from nothing to close to $10k in just over a decade?

We are of course talking about bitcoin. Gambling was the first use-case for bitcoin because it functioned as a superior medium of exchange - solving many of the practical problems bettors face - speed of deposit/withdrawal; card charge-backs; borderless; censorship resistant. And over time its success as a store of value has added even more weight to the argument that bitcoin is better for betting. Your winnings are worth more, not less, and you can benefit from fork dividends too.

Let’s take some concrete examples to hammer home the point using real markets that were offered by Cloudbet, which has been taking sports bets in bitcoin since 2013. The charts below compare the change in value in USD terms for winning bets for key events* based on a $50 stake up to the end of 2019.

Chart 1 assumes the bets were made in USD and Chart 2 assumes in BTC, at equivalent value based on the price of bitcoin at the time.

Immediately you can see that all bets placed in dollars are worth less in real terms, with that erosion gradually increasing over time.

All bets placed in bitcoin are actually worth more in dollar terms by the end of 2019, with the degree of appreciation tracking bitcoin’s own price parabola. However, that wouldn’t be the case across the entire timescale, as for example bitcoin’s all-time high was at the end of 2017 (reaching $20,000) and any bets placed at that point would be worth less.

The chart and choice of events is for illustrative purposes, and the assumption is that continued betting over time would reap the benefits of dollar cost averaging from the overall increase in bitcoin’s average yearly price over time.

So the message is pretty clear, beating the margin is only half the battle in long-term betting profitability. There is no point profiting in an asset that itself is continually declining in value when there is an alternative where the opposite is true.

There is no guarantee that that won’t change over time, but if gambling is your thing, then you should be able to quantify risk, and betting with bitcoin could mean you win twice.

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