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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 concerned about the poor investment behavior caused by speculating on hyper-volatile alternative forms of money sold in cyberspace.

Along those lines, U.K.-based Castle Craig Hospital's addiction clinic views such activities as a big enough problem to expand its compulsive online betting therapy to include victims of cryptocurrency trading. Its program works with patients suffering from gambling addictions in the U.S. as well as Europe. 

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

Using "blockchain" technologies and based on open-source software, such digital currencies are designed to create for each trader a "public ledger" for each transaction. But several popular crypto trading hubs -- like the ill-fated Silk Rose site and the Mt. Gox exchange -- have wound up closing after running afoul of federal regulators and/or encountering severe enough security issues to spur allegations of fraud. At the same time, reports of crypto "wallets" being hacked and traders losing their money keep surfacing.

Even so-called stablecoins, a digital offshoot in which values are tied to a basket of underlying assets such as U.S. dollars, have triggered warnings from Federal Reserve officials who are concerned about a lack of legal and financial safeguards in such a nascent and combustible marketplace. 

Indeed, cryptocurrency prices can trade with more volatility than precious metals such as gold, points out Castle Craig's Marini. "Since there are more than 1,500 different types of cryptocurrencies being sold, volatility in such an unregulated market can go through the roof," he says. "And for someone who likes to gamble, that greater level of risk can make crypto trading seem more exciting than walking through the door of a casino." 

Traders can place bets around the clock and cryptos "come with a built-in sense of mystery since everything is done online," Marini adds. Such a "lack of self-awareness," he suggest, 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, Marini 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," Marini 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 body of scientific evidence warning of the ill-effects of emotions-based investing. Part of his analysis stems from several natural behavioral "biases" identified by neuroscientists as working against objective and fact-based investment strategies. These include overconfidence, hindsight bias, familiarity bias, regret avoidance, self-attribution bias and extrapolation. (The book has been made into a documentary film. You can view this movie, which is broken down by chapter, for free by clicking here.)

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 notes. "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 expansion into treating crypto practitioners is already drawing interest from speculators in the U.S. as well as Europe, reports therapist Marini. "From our view," he says, "cryptocurrency trading could easily become one of the biggest gambling addictions we've ever seen."

This is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, service, or considered to be tax advice. There are no guarantees investment strategies will be successful.  Investing involves risks, including possible loss of principal.