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Gripped by ‘crypt’: A brief look at ‘crypto-trading addiction’

Last week I was approached by Rupert Wolfe-Murray, a PR representative of a well-known addiction treatment clinic (Castle Craig) asking what my views were on Bitcoin and cryptocurrency trading (colloquially known as ‘crypto trading’) and whether the activity could be addictive. More specifically he wrote:

“I write to you about the research we’re doing into addiction to Bitcoin and cryptocurrency trading. We’ve had an enquiry about this at Castle Craig and they would treat it as a gambling addiction. We think it’s a new type of behavioural addiction and we plan to publish a web page (and FAQ) with the intention of alerting people that the online trading of cryptocurrencies may be addictive. It would be very helpful if we could get a quote from you, putting it into perspective. Do you think it’s a growing problem? There’s very little information about this issue online but there is an active forum of ‘crypto addicts’ on Reddit, where I got some friendly feedback…The therapist I often turn to when writing about gambling and the behavioural addictions told me that it sounds like addiction to day trading. Would you agree?”

In short, I couldn’t agree more although my own view is that this is not a ‘new’ addiction but a sub-type of online day-trading addiction (on which I first published an article about back in 2000 for GamCare, the gambling charity I co-founded with Paul Bellringer in 1997) and/or stock market trading addiction (which I’ve written a couple of previous blogs about, here and here, and an article in iGaming Business Affiliate magazine). However, I decided to do a bit of research into the issue.

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A recent January 2018 article in the Jakarta Post by Ario Tamat examined this issue which was a personal account of his own experiences (‘Bitcoin trading: Addictive ‘hobby’ that could break my bank’). He wrote:

“I was always interested in Bitcoin, not that I really understand the technology, but first impressions were appealing: a decentralized currency, mined by solving mathematical equations and potentially accessible to anyone…Fast forward to 2017. Discussions on cryptocurrencies had entered the public consciousness, Bitcoin prices were sky high… A few friends introduced me to a local site on cryptocurrency trading – the most suitable term for the entire affair, actually – bitcoin.co.id. Taking the leap, I took some money out of my measly savings and bought myself some Bitcoin…In three days, I had made 6 percent. I was hooked… I’ve noticed that the whole cryptocurrency trading trend is like placing bets on a never-ending horse race, where new horses are introduced to the race almost daily”.

Another article by Douglas Lampi on the Steemit website noted that “the elements of addiction and gambling are a consistent risk that traders must always be on the guard against” and provided some signs to readers that they may be trading impulsively. These included (i) feeling muscle tension, (ii) feeling background anxiety, (iii) checking the price of Bitcoin and alt coins several times through the day, and (iv) thinking about trading while engaged in other activities. While these ‘symptoms’ and behaviours might be found among those addicted to crypto day trading, on their own they are arguably little more than mildly problematic. These signs applied to gambling or social media use would be unlikely to raise many worries among addiction treatment practitioners.

I also visited the online Bitcoin Forum where one of the topics was ‘Is crypto trading an addiction’ prompted by a Russian who allegedly committed suicide after losing all his money crypto trading. Most of the people on the forum didn’t think it was an addiction and claimed the suicide was reminiscent of the suicides that occurred at the time of the 2009 stock market crash (although a couple of individuals believed that crypto trading was a potentially ‘addicting’ activity). One participant in the discussion noted:

“Yes [crypto trading is] highly addictive, specially formulated if you start to notice that need, urge in side you, to check the price even in the middle of the night. Find yourself skipping your daily routines it is and can be addictive if you don’t know how to control you and your emotions. I have found somewhere that some say that it is like being in casino, betting, playing rules etc. because like every coin was made mostly for pure profit and it’s all speculation rather than to have their own sole purpose which when I think of it can make sense to even why it can be addictive”.

Another individual on the Bitcoin Pub website wrote:

“I think I might actually have an unhealthy addiction to [crypto trading]. I’d say 3/4 times when I unlock my phone I’m checking Blockfolio, when I’m at work, at home, with my girlfriend, or even between sets at the gym. I’m starting to think I need to discipline myself to NOT check it or limit it to maybe 1-2 times a day as its noticeably impacting my passions and in turn my mental state. I’m not a day trader, I hold all my coins in cold storage. So there’s really no reason for me to be checking that frequently, or watching crypto analysis YouTube videos, or reading articles about it several times a day”.

The issue was also discussed in a recent February 2018 article in the Irish Times by Fiona Reddan (‘It’s addictive’: Why investors are still flocking to bitcoin and crypto’). Interviewing Nicholas Charalambous (Managing Director of Alpha Wealth) was quoted as saying: “Previously, I would have described cryptos as ‘shares on steroids’; now I would say they’re shares with jetpacks and boosters and then some”. While Bitcoin shares have fallen, there are plenty of new cryptocurrencies that individuals can dabble buying shares in (ethereum, litecoin, ripple, putincoin and dogecoin) and all can be akin to gambling. Reddan also interviewed Jonathan Sheehan (Managing Director, Compass Private Wealth) who said:

“It has the exact same risk and return characteristics as a naive gambler, who has opened their first online betting account. There is absolutely no valuation metric for these currencies and allocating capital to them is an extreme and unnecessary risk”.

One country that has taken crypto trading addiction seriously is South Korea. Their government’s Office for Government Policy Coordination has introduced new rules to inhibit the speculation on cryptocurrencies. According to a Market Watch article:

“The proposed measures…range from levying capital-gain taxes on trading cryptocurrencies, to restricting financial firms from holding, acquiring and investing in them…The new regulations come amid mounting concern within South Korea about the potential for people to become addicted to bitcoin trading”.

The country’s prime minister Lee Nak-yon went as far as to say that the increasing interest in cryptocurrencies could “lead to some serious distorted or pathological phenomenon”.

I did quickly check what had been written about academically. I came across a couple of papers on Google Scholar that mentioned possible addiction to crypto trading. Justine Brecese (in a 2013 ‘research note’ on the socioeconomic implications of cyber‐currencies for ASA Risk Consultants) asserted that risks with virtual currency include the potential for addiction and resultant over-spending” (but providing little in the way of empirical evidence for the claim). In a paper by Haraši Namztohoto on ‘cryptocoin avarice’, he noted:

“Reason often discretely quits the cognitive battlefield whenever hoarding tendencies of human beings are coupled with addictive behaviour which financial derivate trading surely is, thus leaving humans prone to caprices of mass psychology”.

Given that addictions rely on constant rewards and reinforcement, there is no theoretical reason why crypto trading cannot be addictive. However, there is only anecdotal evidence of addicted individuals and if they are addicted a case could be made that this is a type of gambling addiction.

Dr Mark Griffiths, Professor of Behavioural Addiction, International Gaming Research Unit, Nottingham Trent University, Nottingham, UK

Further reading

Brecese, J. (2013). Research note – Money from nothing: The socioeconomic implications of “cyber-currencies”. Seattle, WA: ASA Institute for Risk & Innovation

Griffiths, M.D. (2000). Day trading: Another possible gambling addiction? GamCare News, 8, 13-14.

Griffiths, M.D. (2009). Internet gambling in the workplace. Journal of Workplace Learning, 21, 658-670.

Griffiths, M.D. (2013). Financial trading as a form of gambling. i-Gaming Business Affiliate, April/May, 40.

Namztohoto, H. (2013). Myth, machinery and cryptocoin avarice. Wizzion.com. Located at: http://wizzion.com/papers/2013/cryptocoin-avarice.pdf

Jeong, E-Y. & Russolillo, S. (2017). South Korea mulls taxing cryptocurrency trade as fears mount about bitcoin addiction, speculation. Market Watch, December 13. Located at: https://www.marketwatch.com/story/south-korea-mulls-taxing-cryptocurrency-trade-as-fears-mount-about-bitcoin-addiction-speculation-2017-12-13

Lampi, D. (2018). Two sure signs YOU are a crypto trading addict. Steemit.com. February. Located: https://steemit.com/cryptocurrency/@ipmal/two-sure-signs-you-are-a-crypto-trading-addict

Reddan, F. (2018). ‘It’s addictive’: Why investors are still flocking to bitcoin and crypto. Irish Times, February 13. Located at: https://www.irishtimes.com/business/financial-services/it-s-addictive-why-investors-are-still-flocking-to-bitcoin-and-crypto-1.3388392

Tamat, A. (2018). Bitcoin trading: Addictive ‘hobby’ that could break my bank. The Jakarta Post, January 8. Located at: http://www.thejakartapost.com/life/2018/01/08/bitcoin-trading-addictive-hobby-that-could-break-my-bank.html

Stock tales: Is financial trading a form of gambling?

One of the questions I am most asked by my students and the media alike is whether trading on the stock market is a genuine form of gambling. That might sound a simple question, but it all comes down to what definition of gambling you are using. My own view on gambling is that it boils down to the staking of money (or something of financial value) on a future event. When I first started my research into gambling back in the mid-1980s, there were four fundamental types of gambling:

  • Gaming – Staking of money during a game (e.g. slot machines, roulette, blackjack, etc.)
  • Betting – Staking money on a future event, typically sports events (e.g. horse race betting, greyhound betting, football betting, etc.)
  • Lotteries – The distribution of money by lot (e.g. National Lottery)
  • Speculation – Staking money on stock markets (e.g., investment in shares, day trading, etc.)

In a previous blog I briefly examined whether stock market speculation was a legitimate form of gambling. However, back in the 1980s, psychologists were only interested in studying the first three of these activities (i.e., gaming, betting and lotteries). Although a few academics accepted ‘speculation’ as a true form of gambling, the majority of researchers in the gambling studies field did not (including me). The prevailing view at the time was that ‘speculation’ was viewed as involving a fair amount of skill and/or relied on ‘insider information’ and therefore was not a legitimate form of gambling compared to other forms of gambling. Although there were clearly accepted forms of gambling that had skilful elements (e.g., poker, blackjack), academic psychologists still rejected speculation as a form of gambling worth investigating.

However, this all changed after the introduction of spread betting. I argued in a number of articles at the end of the 1990s that spread betting had taken the mechanics of stock market trading and applied it to sporting events. For me, this was a game changer in terms of studying the psychology of gambling. No longer could we say that speculation shouldn’t be studied because spread betting was clearly a form of speculation and it was something that appealed to a new type of gambler because it involved sporting events that many people think they know a lot about.

There was also one other key factor in changing psychologist’s perceptions of speculation as gambling – the ‘Nick Leeson effect’. In 1995, Leeson single-handedly brought down the UK’s oldest investment bank (Barings). Leeson was a derivatives broker whose fraudulent gambling caused the spectacular collapse of one of the UK’s most established financial institutions. From the early 1990s, Leeson made countless speculative (and unauthorised) gambles on the stock market that at first made large profits for his employers. However, as with most gamblers, his ‘beginner’s luck’ soon ran out and he started to lose huge amounts of money. Leeson’s losses eventually reached £827 million. Leeson’s psychology and behaviour was identical to that of a problem gambler (except he was gambling with much larger amounts of money and with someone else’s money).

There was perhaps another reason why speculation was seen as psychologically different from gaming, betting and lotteries. Unlike these other forms of gambling, speculation is a type of gambling where the gambler does not know how much they are going to win or lose on the gamble. If I put £1000 on a horse to win the Grand National or on black to come up on a roulette wheel, I know that losing will cost me £1000. On most stock market trades or spread bets, no-one knows beforehand what the losses could be. However, there are financial trades that could perhaps be argued to be more like betting than speculation. For instance, binary options look as though they are going to grow in popularity over the next year or two as the gambling payoff is more traditional than usual financial trading.

In binary option betting, a cash-or-nothing binary option will pay a fixed amount of money if the option traded on expires in-the-money (i.e., it is a simple ‘win-or-lose’ bet as the potential return it offers is certain and known before the purchase is made). One of the attractions of binary options is that they can be bought on virtually any financial product and can be bought in both up and down directions of trade. The simplicity is likely to attract more people especially if they feel they know something about the product being traded upon. This is the same reason why spread betting took off in such a big way because people feel they know about the market (e.g., football) that they are betting on, even if there is a huge element of chance (which there invariably is). My guess is that most people who work in the financial markets don’t see binary options as an investment opportunity – they see it for what it really is – a pure gamble.

Dr Mark Griffiths, Professor of Gambling Studies, International Gaming Research Unit, Nottingham Trent University, Nottingham, UK

Further reading

Griffiths, M.D. (1991). ‘Gambling and Speculation: A Theory, History, and a Future of some Human Decisions’ by R. Brenner and G.A. Brenner. Journal of Economic Psychology, 12, 197-201.

Griffiths, M.D. (1998). Gambling into the Millenium: Issues of concern and potential concern. GamCare News, 3, 4.

Griffiths, M.D. (2000). Day trading: Another possible gambling addiction? GamCare News, 8, 13-14.

Griffiths, M.D. (2006). An overview of pathological gambling. In T. Plante (Ed.), Mental Disorders of the New Millennium. Vol. I: Behavioral Issues. pp. 73-98. New York: Greenwood.

Griffiths, M.D. (2007). Gambling Addiction and its Treatment Within the NHS. London: British Medical Association (ISBN 1-905545-11-8).

Griffiths, M.D. & Auer, M. (2013). The irrelevancy of game-type in the acquisition, development and maintenance of problem gambling. Frontiers in Psychology, 3, 621. doi: 10.3389/fpsyg.2012.00621.

Griffiths, M.D. (2013). Financial trading as a form of gambling. i-Gaming Business Affiliate, April/May, 40.

Trading flaw: Is excessive stock market speculation another form of addictive gambling?

Earlier today, the news was dominated by the story that British city trader Kweku Adoboli had been jailed for seven years after he defrauded £1.4bn while day trading at the Swiss bank UBS. (the largest trading loss in British banking history). The phrases that kept recurring on most of the television reports that I saw was that Adoboli was “a gamble or two away from destroying Switzerland’s largest bank” after losing money in “unprotected, unhedged, incautious and reckless” day trading, and that he claimed he “lost control over his trades” during a period of market turbulence in the latter half of 2011. The question I am always asked by the media is whether day trading is just gambling by another name – and in a nutshell, my answer is a resounding ‘yes’. The prosecution seemed to concur with my own opinion as they claimed Adoboli was a gambler who believed he had a “magic touch”. Detective Chief Inspector Perry Stokes gave evidence and said that Adoboli was “running completely out of control”. More specifically he said:

“He did so, by breaking the rules, covering up and lying. In any business context, his actions amounted to fraud, pure and simple.The amount of money involved was staggering, impacting hugely on the bank but also on their employees, shareholders and investors. This was not a victimless crime. To all those around him, Kweku Adoboli appeared to be a man on the make whose career prospects and future earnings were taking off. He worked hard, looked the part and seemingly had an answer for everything. But behind this facade lay a trader who was running completely out of control and exposing UBS to huge financial risks on a daily basis. When Adoboli’s pyramid of fictitious trades, exceeded trading limits and non-existent hedging came crashing down, the repercussions were felt in financial centres around the world”.

The words ‘trader’ and ‘trading’ could easily be swapped for ‘gambler’ and ‘gambling’ as all the consequences are the same. Here is someone who lost all control of his behaviour, thought he had the ‘magic touch, and lied and deceived to cover his tracks. As someone that as spent over 26 years studying problem gambling, the media accounts sound all too familiar. (I ought to add that the prosecution alleged that outside of his job, Adoboli was taking extra bets with his own money and was accused of being “addicted to gambling”). The press coverage also made much reference to the fact that Adoboli engaged in the classic ‘double or quits’ strategies used by many hardcore gamblers (where, after a big loss, gamblers will double their bet in an attempt to recoup their lost money as quickly as possible). Again, this is further evidence that trading is just gambling under another name.

And of course, Adoboli was not the first trader to do this. Nick Leeson – you may remember, the so-called ‘Rogue Trader’ – was the man who in 1995 single-handedly brought down the UK’s oldest investment bank (Barings). Leeson was a derivatives broker whose fraudulent gambling caused the spectacular collapse of one of the UK’s most established financial institutions. From the early 1990s, Leeson made countless speculative (and unauthorized) gambles on the stock market that at first made large profits for his employers. However, as with most gamblers, his ‘beginner’s luck’ soon ran out and he started to lose huge amounts of money. To cover up his losses, he began to hide his large losses in an ‘error account’ (i.e., accounts that are used by financial companies to correct their mistakes made in trading). It was on 16 January 1995 that one national disaster (the Kobe earthquake) led to a disastrous financial one (the collapse of Barings Bank).

Things went tragically wrong when Leeson – using his employer’s money in an effort to recoup some of the money he had lost – placed a bet that the Japanese stock market would not move significantly overnight. However, on the morning of January 17, the Kobe earthquake occurred and it sent the Asian financial markets into turmoil. To try and retrieve the lost money, Leeson made a series of increasingly risky gambles by betting that the Nikkei Stock Market would recover quickly – but it didn’t. Leeson’s losses eventually reached £827 million (which was more than twice the bank’s available trading capital). After a failed bailout attempt, Barings Bank was declared insolvent just over five weeks later (February 26 1995). Leeson fled but was eventually caught in November 1995 and was charged with fraud. He received a jail sentence of six-and-a-half years. Interestingly, Leeson (and others) went on to blame Baring’s own poor auditing and risk management practices (just as Adoboli claimed in his trial too).

Most companies probably do not have policies in place to prevent one individual employee gambling away all of the company profits. However, Leeson’s and Adoboli’s (albeit somewhat extreme) antics demonstrate that organizations need to acknowledge that gambling with company money can be disastrous for the company if things go horribly wrong. While no company expects an employee gambling to bring about their collapse, the cases of Leeson and Adoboli do at least highlight gambling as an issue that companies ought to think about in terms of risk assessment.

Earlier today, BBC News published an article by Laurence Knight on ‘the psychology of the rogue trader’. Knight worked for six years for an investment bank. Although Knight wasn’t a trader, he interacted daily with traders. Knight said:

“For many traders, their sense of self-worth is defined almost uniquely by their ‘P&L’ – the profit and loss they make for the bank – and, by implication, the size of their bonus. Making a profitable trade shows that they are right. And the bigger the profit, the more right they are. As for the enormous bonuses…their importance is not so much in the material wealth they bring, so much as the recognition of the trader’s status and success…Adoboli specifically denied being motivated by personal gain in the form of a bonus, and the jury appear to have believed him. But he does nonetheless seem to have suffered from a fixation on profit above all else, which he claimed was because he felt under pressure to produce results”.

Knight’s former trainer at the investment bank where he worked – Bruno Curnier – claimed many traders suffer from ‘Gekko syndrome’ (named after the fictitious “greed is good” film character Gordon Gekko in Oliver Stone’s Wall Street). Curnier claimed:

“[Some traders] lack self-awareness – the ability to understand their own emotions and how they affect others. The aggressive, risk-taking, boundary-pushing, ‘high-roller’ image of the trader tends to attract exactly that kind of applicant. This self-selection effect can then be reinforced by a recruitment process in which the successful candidates are ultimately picked by the traders they will work for. I don’t think some traders have any clue how to manage people. They recruit people they like – if they see the same drive”.

Knight claims the traders he knew fell into one of three types (‘flow traders’, ‘quant traders’ and ‘elephant hunters’). These three types are not based on any scientific research, just on Knight’s sex-year experience of working with such people. More specifically he claimed:

“The most stereotypically aggressive are the “flow” traders – people who work in the simplest, most competitive and fast-moving markets, such as currencies or shares…The traders had rigged their computers to blare out noises or tunes every time they bought or sold. Then there were the ‘quant’ traders – those dealing with financial options or complicated transactions know as synthetic CDOs. They were brainy types, who needed to have an intuitive grip on the complex maths involved, and occasionally blew up when they got their maths wrong. Finally, there were the ‘elephant hunters’. These characters might spend months on one big transaction earning millions of dollars in profit. They too were deep thinkers, but their thoughts were turned to negotiating tactics, complex legal documents and accounting issues. They also seemed to be mostly likeable family men. Nearly all of the traders that I have heard of losing millions or billions (including two minor cases that never became public) fit somewhere between the first two types”.

Knight also made reference to a fascinating study that I tracked down quite easily. The study examined the biology of traders by measuring their levels of testosterone and cortisol among 17 traders while working. The study was carried out by Dr. John Coates and Dr. J. Herbert and published in a 2008 issue of the Proceedings of the Natlonal Academy of Sciences. The authors reported:

“Little is known about the role of the endocrine system in financial risk taking. Here, we report the findings of a study in which we sampled, under real working conditions, endogenous steroids from a group of male traders in the City of London. We found that a trader’s morning testosterone level predicts his day’s profitability. We also found that a trader’s cortisol rises with both the variance of his trading results and the volatility of the market. Our results suggest that higher testosterone may contribute to economic return, whereas cortisol is increased by risk. Our results point to a further possibility: testosterone and cortisol are known to have cognitive and behavioral effects, so if the acutely elevated steroids we observed were to persist or increase as volatility rises, they may shift risk preferences and even affect a trader’s ability to engage in rational choice”

Knight interviewed Coates who reportedly said:

“What I firmly believe is that financial risk-taking is a profoundly physical act. It’s a bit like an army gearing up for a cavalry charge. If we are doing well, the body tells us: ‘Go for it, there’s fruit everywhere’.The downside is that it makes the winner stupidly reckless – when traders blow up, it typically comes at the end of a long winning streak.And this is what seems to have happened with Adoboli”

Gambling is a popular leisure activity and recent national surveys into gambling participation show that around two-thirds of adults gamble annually and that problem gambling affects around 1% of the British population (as measured by our most recent national gambling prevalence survey. There are a number of socio-demographic factors associated with problem gambling. These included being male, having a parent who was or who has been a problem gambler, being single, and having a low income. Other research shows that those who experience unemployment, poor health, housing, and low educational qualifications have significantly higher rates of problem gambling than the general population.

It is clear that the social and health costs of problem gambling can be large on both an individual and societal level. Personal costs can include irritability, extreme moodiness, problems with personal relationships (including divorce), absenteeism from work, family neglect, and bankruptcy. There can also be adverse health consequences for both the gambler and their partner including depression, insomnia, intestinal disorders, migraines, and other stress-related disorders. “Addicted’ traders are likely to experience similar (if not exactly the same) effects.

Problem gambling can clearly be a hidden activity and the growing availability of internet gambling is making it easier to gamble from the workplace. Thankfully, it would appear that for most people, gambling is not a serious problem. For those whose gambling starts to become more of a problem, it can affect both the organisation and other work colleagues (and in extreme cases, such as Leeson and Adoboli, cause major problems for the company as a whole). Managers clearly need to have their awareness of this issue raised, and once this has happened, they need to raise awareness of the issue among the work force. Gambling is a social issue, a health issue and an occupational issue. Although not high on the list for most employers, the issues highlighted here suggest that it should at least be on the list somewhere.

Dr Mark Griffiths, Professor of Gambling Studies, International Gaming Research Unit, Nottingham Trent University, Nottingham, UK

Further reading

BBC News (2012). Kweku Adoboli jailed for fraud over £1.4bn.  November 20. Located at: http://www.bbc.co.uk/news/uk-20338042

Coates, J. & Herbert, J. (2008). Endogenous steroids and financial risk taking on a London trading floor. Proceedings of the Natlonal Academy of Sciences, 105, 6167-6172.

Griffiths, M.D. (2000). Day trading: Another possible gambling addiction? GamCare News, 8, 13-14.

Griffiths, M.D. (2002). Internet gambling in the workplace. In M. Anandarajan & C. Simmers (Eds.). Managing Web Usage in the Workplace: A Social, Ethical and Legal Perspective. pp. 148-167. Hershey, Pennsylvania: Idea Publishing.

Griffiths, M.D. (2004). Betting your life on it: Problem gambling has clear health related consequences. British Medical Journal, 329, 1055-1056.

Griffiths, M. D. (2006). Pathological gambling. In T. Plante (Ed.), Abnormal Psychology in the 21st Century. pp. 73-98. New York: Greenwood.

Griffiths, M.D. (2009). Internet gambling in the workplace. Journal of Workplace Learning, 21, 658-670.

Griffiths, M.D. (2010). The hidden addiction: Gambling in the workplace. Counselling at Work, 70, 20-23.

Knight, L. (2012). The psychology of the rogue trader. BBC News, November 20. Located at: http://www.bbc.co.uk/news/business-19849147

Wardle, H., Moody. A., Spence, S., Orford, J., Volberg, R., Jotangia, D., Griffiths, M.D., Hussey, D. & Dobbie, F. (2011).  British Gambling Prevalence Survey 2010. London: The Stationery Office.