Claim steel-manned

Crypto assets have no income-cashflows therefore investing in crypto assets is a negative sum game 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.

Evidence of claim being made

Diehl, Stephen. [@smdiehl]. Tweet. Twitter, 18 March 2021. https://twitter.com/smdiehl/status/1372495197926490114.

...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.

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, 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. However as an investment crypto assets have no income-cashflows, 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. All money won by speculation 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.

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 (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.

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.

Diehl, S. (2021) ‘The Intellectual Incoherence of Cryptoassets’, 7 November. Available at: 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 (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/ (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/.

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.

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 (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.

Taleb, N.N. (2021) ‘Bitcoin, Currencies, and Fragility’, arXiv:2106.14204 [physics, q-fin] [Preprint]. Available at: http://arxiv.org/abs/2106.14204 (Accessed: 25 February 2022).