Usually the house wins!  (With the exceptions of counting cards at blackjack or beating the table at poker.)  So why not try a game where the odds are — if not outright “better” — at least a lot less clear?  Enter Bitcoin.  No matter what your theory of its future value, there is no simple story which flat out amounts to “the house wins,” if only because of the opaqueness of the matter.  It is also a fun gamble and bundled with various symbolic commitments to future tech, libertarianism, and so on.  For many people that is better than affiliating with Vegas, the local football team, or perhaps Macau.  You can follow the price on as frequent a basis as you wish, rather than having to wait for a sporting event to take place.  And unlike in equities, futures, and options markets, you can feel — rightfully or not — that the pros also don’t know what they are doing.

I can’t find a reliable source on how much is spent on gambling each year, legal and illegal, but a variety of unreliable sources are suggesting a few hundred billion a year for the U.S. alone.  It’s likely to be well over a trillion dollars worth for the world as a whole.

Let’s say one percent of that gambling demand spills over into the cryptocurrency arena.  That’s a flow of $10 billion a year to fund new cryptocurrencies or bid up the value of old ones, maybe more.  Bitcoin also may interest people in gambling who otherwise do not gamble or think of themselves as gambling types.

I don’t gamble and I don’t enjoy gambling, but if I were going to gamble, I would prefer to gamble with Bitcoin than to bet on a dog race.  And it has to be better than buying a lottery ticket.

To the extent we are uncertain about the future gambling demand for Bitcoin, the price of Bitcoin will be correspondingly volatile.  And we have no solid sources for trying to estimate such future demands.  At the very least it seems likely that such demand has not yet peaked or close to it.  In any case, the trading of Bitcoin itself will reveal information about the shape of the demand curve and thus the trading of the asset can inject further volatility into the market, a standard result when not everything is a flat, horizontal demand curve.

Here are various tweets related to Bitcoin and gambling.

He explains it very well in a single paragraph:

The second strategy, which has dominated U.S. policy in recent years, is lowering relevant interest rates and capital costs as much as possible and relying on regulatory policies to ensure financial stability. No doubt the economy is far healthier now than it would have been in the absence of these measures. But a growth strategy that relies on interest rates significantly below growth rates for long periods virtually ensures the emergence of substantial financial bubbles and dangerous buildups in leverage. The idea that regulation can allow the growth benefits of easy credit to come without cost is a chimera. The increases in asset values and increased ability to borrow that stimulate the economy are the proper concern of prudent regulation.

Note that “build-ups in leverage” will do enough of the work of the argument if you are allergic to citation of “bubbles.”

On April 28, 2013 Paul Krugman clearly said that 2013 was a test of market monetarism:

But as Mike Konczal points out, we are in effect getting a test of the market monetarist view right now, with the Fed having adopted more expansionary policies even as fiscal policy tightens.

Yesterday (Jan 4, 2014) however, Paul Krugman, said:

…I don’t take seriously the claims of market monetarists that the failure of growth to collapse in 2013 somehow showed that fiscal policy doesn’t matter.

There are two obfuscations here. First, it wasn’t the market monetarists who established the test it was Konczal and Krugman who laid down the glove so Krugman is saying he doesn’t take his own (April) claims seriously. Second, in April Krugman did appear to take his claims seriously, perhaps because:

…the results aren’t looking good for the monetarists: despite the Fed’s fairly dramatic changes in both policy and policy announcements, austerity seems to be taking its toll.

Now that the results are in, however, Paul claims that compared to southern Europe American austerity wasn’t so bad or it was really bad but small enough to be offset by “other stuff”:

US austerity, although a really bad thing, wasn’t nearly as intense as what happened in southern Europe; it was small enough that it could be, and I’d argue was, more or less offset by other stuff over the course of a single year.

But the ticker tape (April 27, 2013) suggests a much different emphasis (note also that here Paul names “other stuff’ and it is adding to the problem not subtracting):

There is some tendency among economic commentators to think that austerity policies in a deeply depressed economy are mainly a European thing… But the truth is that federal stimulus is years behind us, while state and local governments have cut back, so the overall story is one of fiscal contraction that’s smaller than in Europe, but not by that much….Bear in mind that in the years since the recession began we’ve seen a significant number of boomers reach retirement age, which would ordinarily have led to rising spending, not to mention the effects of rising health care costs. Bear in mind also that the private sector is still deleveraging, which means that government should be spending more to help sustain the economy. So this is actually a picture of very bad policy.

Even more amusingly, arch-Keynesian Paul Krugman now says we are approaching the long run! In a post titled What A Good Year Won’t Prove he says:

If 2014 is a year of relatively good growth, you know that many people will take that as somehow refuting Keynesianism — hey, didn’t you guys predict that the economy would never recover without fiscal stimulus?

No, we didn’t [the linked post, is from 2009, AT]

In the long run, we will have a spontaneous economic recovery, even if all current policy initiatives fail….

Now, to be fair, I happen to agree with Krugman that one test is not decisive. The economy is very complex and we don’t have controlled macro-experiments so lots of things are going on at the same time. But as one wise commentator put it:

…using hedged language doesn’t insulate you from consequences if things don’t turn out the way you were clearly suggesting they would, nor does the true point that sometimes the right model makes a wrong prediction. If your model led you to believe that inflation austerity was a “great danger” in 2009 2013 the fact that this danger never came to pass should substantially reduce your belief in that model – and should substantially reduce your credibility if you refuse to revise your beliefs.

Addendum: Scott Sumner has a similar reaction at Econlog.