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Addiction Clinic Extends Therapy to Bitcoin Traders

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The growing popularity of Bitcoin and other cryptocurrencies is raising red flags not just with investment professionals. Healthcare experts are also becoming concerned about the poor investment behavior caused by speculating on hyper-volatile alternative forms of money sold in cyberspace.

The latest news comes from U.K.-based Castle Craig Hospital, which runs a globally renowned addiction clinic. Its compulsive online betting therapy program has recently expanded to include treatment for cryptocurrency traders.

Violent price fluctuations experienced in cyber speculation related to Bitcoin, Ethereum and other online alt currencies tend to create an artificial "high" for individuals buying or selling in this "alternative reality" marketplace, says Christopher Burn, a gambling therapist at Castle Craig.

In early May, for example, the price of Bitcoin reached nearly $10,000. By month's end, the most heavily traded cryptocurrency had lost more than a quarter of its value. Despite such a fast and furious correction, hope springs eternal for many crypto speculators.

Enthusiasts stake their hopes of accumulating vast fortunes to fleeting numbers showing huge spikes in Bitcoin. For example, the cyber currency jumped by more than 225% between mid-November and late-December last year, according to the Coindesk Bitcoin Index.

"In some ways, crypto trading can seem more exciting than putting a bet on a horse and waiting for it to run," Burn says. "You can bet on Bitcoin on a 24/7 basis and it comes with a built-in sense of mystery since everything is done online."

In effect, he notes, such a "lack of self-awareness" provides "almost everything gamblers might want" in terms of allowing them to "become engulfed in an alternative trading world which brings out their most addictive qualities."

Although crypto trading is one of the newest forms of gambling, Burn sees it as posing one of the most "intoxicating" and "most dangerous" addictions yet.

As a stimulus for bringing out the worst in addictive behaviors in people, he ranks crypto trading as worse than active stock trading.

"Unlike day trading in stocks, which takes some thought about the investment itself," Burn says, "crypto trading is pure speculation based on emotions about the fear of missing out on future gains. Studies we’ve seen show that most traders rarely fully understand how these vehicles – let alone crypto markets on the whole -- actually work.”

Of course, obsessively playing stocks and bonds is recognized by Gamblers Anonymous as a form of gambling addiction. It's a common behavioral trap associated with active investing that has written extensively about over the years. Our founder, Mark Hebner, is so concerned about the tendencies of active management strategies to scratch investors' worst behavioral itches that he’s devoted a whole section to the issue in his book, "Index Funds: The 12-Step Recovery Program for Active Investors."

In fact, the very first step raised by Hebner includes a review of a growing wealth of scientific evidence warning of the ill-effects of emotions-based investing.

Part of such an analysis is a list of six different natural behavioral "biases" identified by neuroscientists as working against objective and fact-based investment strategies. These are: overconfidence, hindsight bias, familiarity bias, regret avoidance, self-attribution bias and extrapolation.

As IFA constantly stresses, resisting such urges is a major benefit of constructing portfolios using index funds and taking a passive rather than active approach to investing. "Passive investors invest regardless of market conditions, because they understand that short-term volatility is unpredictable," Hebner writes. "They know that succumbing to gut instincts and emotions undermines long-term wealth accumulation."

For highly diversified passive investors, we view crypto currencies as little more than the latest trading drug to appear in the global marketplace.

Even so, like other harmful narcotics, Bitcoin and the like are attracting a larger trading audience these days, particularly among younger users.

Just ask health care professionals at Castle Craig. The clinic's new expansion into treating crypto practitioners is already drawing interest from speculators in the U.S. as well as Europe, reports therapist Burn. "From our view," he says, "cryptocurrency trading could easily become one of the biggest gambling addictions we've ever seen."