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Manias and bubbles: putting cryptocurrency into context

| By Joanne Christie | Reading Time: 5 minutes
Nick Garner says the recent volatility in cryptocurrency prices was not the beginning of the end but rather the start of a period of consolidation

Nick Garner says the recent volatility in cryptocurrency prices was not the beginning of the end but rather the start of a period of consolidation.

What do Bitcoins, the internet and tulips have in common? They all triggered speculative bubbles.

The Dutch tulip mania came to an end in February 1637 but at its height, some of the rarer tulip varieties were sold for more than 10 times the annual income of a skilled crafts worker. If we equate that to a skilled worker today, that’s £400,000 for a single tulip bulb!

Talking of bubbles… in 1998 one could have been forgiven for thinking the internet was just for watching porn, buying drugs and early forms of gambling.

However, by the late 90s, it was clear the internet was here to stay and couldn’t be destroyed by any single entity. That’s when the dotcom bubble began.

As I see it, there was fundamental utility with the internet but the speculators who got involved didn’t know what to put their money into. These investors poured cash into companies such as Webvan & Boo.com. There was a collapse and vast fortunes were lost. Thus followed consolidation and steady growth ever since.

What about Cryptocurrency?
I set up Oshi.io, my crypto casino, because I saw the beginnings of a huge change that is going to affect all of our futures and that change driver is blockchain. Cryptocurrency and Bitcoin is just one manifestation of blockchain.

Cryptocurrency doesn’t belong to any one person. It’s open source and therefore in a sense it belongs to everyone. It’s easy to trust cryptocurrency because it’s founded on blockchain with its open ledger technology over which no single entity has control.

Cryptocurrency is not regulated by governments, its price is the market price and it has rarity and trust, thus determining the value.

In the following chart I have superimposed the BTC/USD exchange rate since 2013 (orange) over the Nasdaq index over all time (blue).

There are uncanny parallels between the two charts. I also believe there are close parallels between the birth of the internet and cryptocurrency. My guess is that Bitcoin will follow the same path as the Nasdaq. Right now, we are in the consolidation phase of cryptocurrency and within a few years it will eclipse the values we saw in 2017.

Since speculation in the price of Bitcoin is essentially gambling, it’s easy to draw comparisons with gambling at a casino.

This next chart shows you interest over time on Google for the keyword ‘Bitcoin casino’ (blue), with the grey line representing the Bitcoin price in US dollars over the same time period.

Notice the correlation between interest in cryptocurrency and gambling with cryptocurrency… In my experience, cryptocurrency gambling is directly correlated to the amount of interest in Bitcoin and other cryptocurrency prices.

As cryptocurrency gains more acceptance in years to come, I think cryptocurrency gambling will follow in parallel.

The appeal of crypto gambling
Players enjoy the privacy and freedom of choice cryptocurrency gives them. We have players from the most unlikely territories, Bangladesh for instance.

Players can exercise their freedom of choice and gamble using cryptocurrency because there is no direct government control over Bitcoin and moving currency across borders is frictionless.

However, it’s not all good. Bitcoin transaction costs have had a big effect on turnover. When the Bitcoin bubble got very frothy in the midwinter of 2017, so did transaction costs. At the peak, it cost US$55 equivalent to send Bitcoin somewhere. For perspective, a year earlier it cost $0.29 to make the same transaction. Today the same transaction is around $0.75.

Whenever there was a big price move or transaction price hike, we would see players stay away for a couple of weeks and once volatility had settled, they would return.

Generally, for my players, they see Bitcoin as a means of exchange so they can follow their interests without hindrance.

The long-term future for cryptocurrency gambling
In the long term I believe the utility of cryptocurrency will be accepted as the norm, i.e. cross-border, immediate, low transaction costs and no chargebacks. However, there will be more and more licensed jurisdictions, with an increased tax take from governments.

When you combine the frictionless nature of cryptocurrency, along with emerging technology around smart contracts — agreements digitally encoded that are flexible, but 100% trustworthy for numerous reasons — you get some interesting possibilities.

Smart contracts allow for disintermediation, i.e. getting rid of central banks and third parties which we trust to supervise contracts such as lawyers, corporate entities, etc. The lack of middle men means the process of value exchange becomes far more efficient.

Gambling is essentially a value exchange between a player and an operator. If you take sportsbook gambling, it’s a value exchange either during or after an event. With smart contracts you can get very clever about the terms in which the value exchange is completed. You could have in-play betting (nothing new), but you could also have an open secondary exchange for bets that have not yet been settled, just like a stock market.

These are just a couple of examples of what gambling can be. Ultimately gambling operators want to satisfy players and with this emerging technology, they’ll be able to offer better odds and be able to handle aggressive, smart players. In effect, you will get the benefits of exchange betting without the need for a huge pool of players. In other words, you don’t have to be the Betfair exchange to compete with Betfair exchange.

I did some analysis of the crypto gambling scene and used a tool called Digimetr to look at the web traffic statistics from 47 different crypto casinos and sportsbooks. I then aggregated all of this data and created this chart, which covers the period January to June 2018.

Broadly, you could say the crypto gambling scene is healthy and growing steadily. Obviously it’s tiny compared with the fiat operators, but you don’t see a clear correlation between the descending price of Bitcoin and interest in crypto gambling.

Just like the internet, I believe cryptocurrency is here to stay. It’s had its shakedown and now it’s quietly creating a revolution that will affect everybody in the most unpredictable ways in the future.

Nick Garner is founder of Oshi Bitcoin casino on the Bgaming platform. Previously he was a marketing manager at Betfair (Paddy Power Betfair) and a senior marketing manager at Unibet (Kindred).

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