How to apply Fiat Cost Averaging to Bitcoin gambling

25 October, 2020

Whenever the topic of safe gambling comes up, one of the points that must be made is the necessity for developing strategies to prevent problem gambling. In other words, gambling is supposed to be a means of entertainment. The last thing the industry wants is for it to become an addiction. Casino operators and affiliates do not take pleasure in the fact that some people become problem gamblers.

In light of that, websites like ours frequently discuss strategies to prevent problem gambling. We talk about not betting more than you can afford to lose. We talk about not using gambling as a means of generating income. With this post, we want to introduce a different kind of strategy taken from the world of investing.

That strategy is known as dollar cost averaging (DCA). For the purposes of this post, we will refer to it as fiat cost averaging (FCA) inasmuch as our primary focus is on gambling with Bitcoin (BTC). Note that even if you do not gamble with cryptocurrency, you can utilize the same strategy.

Fiat cost averaging explained

Fiat cost averaging is the cryptocurrency equivalent of dollar cost averaging, a strategy used for generations among investors shy of speculation. In a DCA scenario, an investor takes the emotion out of investing in stocks, bonds, etc. by setting up very strict rules.

For example, an investor might commit to investing $500 per week, broken down into five different investment vehicles. He might choose two stocks, two mutual funds, and a commodity. He will invest $500 per week in those same assets for five years straight. And he will do so regardless of market conditions.

The same thing can be done in the cryptocurrency markets. FCA follows the same essential rules. An apples-to-apples comparison would have another investor putting $500 per week into a number of different coins. Perhaps $250 goes into BTC, $150 goes into BCH, and the remainder into ETH. The investor does not change the investment amount or schedule for five years.

A long-term strategy

Both DCA and FCA are long-term investment strategies. They are both designed to avoid having to make on-the-spot investment decisions based on extraordinary market conditions. By creating a rule and then sticking to it, investors do not have to continually watch markets and make decisions based on volatility. Over the long term this translates into profits.

A great article published by Bitcoin Magazine illustrates how well this works in the cryptocurrency world.1 Published in October 2020, the Pascal Hügli piece illustrates BTC profits based on current and past pricing. If you invested $100 per week in BTC over 1, 3, and 5 years, you would have earned profits as follows:

  • 1 year - 18% ($5200 become $6295)
  • 3 years - 47% ($15,600 becomes $23,125)
  • 5 years - 664% ($26,000 becomes $199,626).

Of course, profits are often helped by impressive and unusual price swings, but cryptocurrency is no different from other types of assets in one respect: over long periods of time, it tends to appreciate in value. The FCA investment concept takes advantage of that fact.

FCA and Bitcoin gambling

Now let us take the FCA concepts and apply it to Bitcoin gambling. From the outset, understand that this strategy is not being applied as a means of guaranteeing you make money. Gambling is not an investment. It is also not a reliable way to generate steady income. Gambling is a means of entertainment. The point of applying the FCA strategy is not to guarantee that you don't lose your shirt.

You know enough to set limits every time you make a casino deposit. You know the golden rule of not betting funds you need to pay your bills. You are good so far. But remember that Bitcoin's volatility adds an extra element to your gambling entertainment.

When you deposit BTC to play slot games, for example, you are gambling on both the slot games and the value of your coin. You could deposit today, never spin the reels on a slot game, but still be a loser by the end of the day. How? A BTC price drop that devalues your coin.

Adopting the FCA strategy should limit your losses at the casino. Applying the same strategy to purchasing BTC can counter those losses by generating a long-term profit, as long as you leave some of your BTC holdings alone and treat them like investments.

How the strategy could work

Practically speaking, the FCA strategy could be applied with some simple rules. Let us assume you have $500 per month you can afford to spend at the casino. You commit to depositing the equivalent of $125 in BTC each week. You also commit to not losing any more than that amount.

Your weekly deposits remain unchanged. If you do not meet your loss limit in a given week, the balance carries over into the next week. Yet your $500 total loss limit for the month remains unchanged. Your regularly scheduled deposits keep you on track while your weekly loss limits prevent you from going overboard.

Do this over the course of a year and you should find it easier to avoid exceeding your self-imposed loss limit. Why? Because you have taken your emotions out of the equation. By setting hard and fast rules for deposits and losses, you are less tempted to make additional deposits and play more games in an attempt to recoup what you have lost. The rules help you avoid the roller coaster that can sometimes be online gambling.

Speculation and emotion

Applying an FCA strategy to Bitcoin gambling could work for the simple fact that BTC gambling and speculative BTC investing are both emotional experiences. As Pascal Hügli pointed out in his piece, far too many investors get into crypto without a grasp of speculative investing. Many do not even know that what they are doing is considered speculation.

In the investment world, there are different kinds of assets. More traditional assets - like stocks and property - are capable of producing something with intrinsic value. You can invest in a piece of land and develop it into housing or commercial property. Likewise, you can purchase stock in a company that takes raw materials and turns them into retail products. These types of investments tend to return dividends.

The other side of the coin are speculative investments. These are investments that either return little or nothing in terms of tangible value. Their price is based on speculation. Precious metals are a good example. Take gold, for example.

In and of itself, gold does not produce anything in the same way a piece of land or a stock can. Its entire value is wrapped up in supply and demand., Purchasing it as an investment relies on your ability to sell it for a higher price later on. You are speculating that the price will go up.

Cryptocurrencies work the same way. They have little intrinsic value of their own. That may change in the future, if they eventually experience worldwide adoption as payment systems, but they do not possess tremendous intrinsic value at the current time. Investing in crypto is based on speculation.

There is nothing wrong with speculating on assets. If that is the way an investor chooses to spend his money, that's fine. Plenty of people have made themselves quite wealthy on speculation. But here's the thing: speculative investment can be an emotional roller coaster - just like playing slot machines or betting on the roulette wheel.

You have your ups and downs in the markets the same way you do at the casino. So if DCA works well to balance out emotions in the investment world, FCA should do something similar for Bitcoin gamblers. Establishing rules and sticking with them tempers one's emotions in both directions.

Give it a try yourself

Do you invest in Bitcoin? If so, do you use BTC to fund your casino deposits? We encourage you to think about the FCA strategy in both arenas. You can give it a try and see how well it works. If nothing else, it should protect you against excessive losses on both fronts. In terms of your investing, it could even help you generate higher profits over the long term.

As for Bitcoin gambling, remember that it is designed for entertainment purposes only. Remember the tried-and-true rules for preventing problem gambling:

  • Establish a loss limit for every session
  • Do not gamble with funds you need to pay your bills
  • Only bet what you can afford to lose
  • Set a time limit for every session.

The most important rule is to stop gambling and get help at the earliest signs of losing control. Do not give in to even the first temptation to win back what you've lost by making one more deposit and placing one more bet. Giving in once makes it easier to give in twice, then three times, etc.

It has been said that investing in BTC is a gamble. If that's true, then some of the same strategies that protect investors over long periods of time should help limit losses at the casino. To that end, think about applying the FCA model to the way you gamble online. It could turn out to be the best strategy for keeping gambling in perspective.

1) Bitcoin Magazine