In this newsletter I want to use blackjack as an analogy for crypto markets and discuss why casinos are so profitable when the odds are marginal. Blackjack is a card game played in every casino in Las Vegas, the player gets two cards and draws to get as close to 21 without going over. The odds are fixed in the casinos favour (most of the time) but it’s marginal. In any single game a player that knows basic strategy will win 49.5% of the time. Casinos are vastly more profitable because of some interesting nuances.
Most Players Are BadYou can learn basic strategy on the plane to Vegas, it’s not hard and just requires memorising a chart. The vast majority of people at the tables make bad moves increasing the house advantage. Every time a drunk guy splits queens the house advantage goes up alongside the profit margins for the casino. The same thing happens in crypto markets where the average market participant is proudly degenerate. Learning the basics of how the technology works, market cycles, expected value calculations, tokenomics and technical analysis increases the odds in our favour. Most Players Play To LoseIn any single game the odds are marginal but the vast majority of people walking out of the casino leave all their chips on the table.
Blackjack is a streaky game where players chip stacks fluctuate up and down. The issue is that most players don’t calculate the risk of ruin and their starting stack is too small to handle the volatility over the course of an evening. Players bet too much relative to their stack and eventually volatility takes them out and they stop playing at zero. The same is again true in crypto markets where no one walks away at the top of a bull market. In fact the opposite is true that most people “discover crypto” at the worse possible time and invest funds at the point of maximum risk. The Crypto CasinoIn Vegas it’s rare to find opportunities where the odds are in your favour. In trading, and digital asset markets in particular, I’d suggest that this is far more common. Once in a while there is an opportunity where the potential gains far outweigh the risk. By researching and learning about the technology we open ourselves up to finding more of those opportunities.
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