Bloomberg: Gambling is No Longer Investing's Evil Twin
With Robin Hood entering the gambling sector, Bloomberg suggests that gambling and investing are more intertwined than ever.
In case you missed it, Robin Hood announced its foray into the gambling prediction market space earlier on March 17.
“We believe in the power of prediction markets and think they play an important role at the intersection of news, economics, politics, sports, and culture,” said JB Mackenzie, VP & GM of Futures and International at Robinhood. “We’re excited to offer our customers a new way to participate in prediction markets and look forward to doing so in compliance with existing regulations.”
The prediction markets hub–and corresponding contracts–will initially be available across the US through KalshiEX LLC, a CFTC regulated exchange.
Brown observes the following:
The fundamental distinction between investing and insurance on the one hand, and gambling on the other, is that the first two reallocate the inherent risk of economic activity while gambling creates risk to have something to bet on.
"Not everyone accepts this distinction. Many people claim markets are gambling. Trading on the New York Stock Exchange is no different from what is done in Las Vegas, and life insurance is just a bet that you will die before the policy expires. Other people, primarily quants, think gambling is trading. A bet is a bet whether made on Nvidia Corp. stock, frozen orange juice futures or South Carolina winning the 2025 Women’s NCAA basketball crown.
"Most people, however, and most laws and regulation, distinguish between trading with a clear connection to productive economic activity, and betting for entertainment. Few people would be comfortable if Robinhood offered online blackjack and roulette, or if stocks and bonds were sold by waitresses in scanty costumes at the Wynn casino.
"Unfortunately, the distinction is not sharp. It’s easy to differentiate between making a loan to a startup and betting eight the hard way at a craps table. But a lot of trading seems unrelated to productive economic activity, creating risk rather than reluctantly accepting inherent risk from others, and done for excitement or out of delusion rather than prudent calculation.
"Moreover, prediction markets don’t create the risk they traffic in and could be used to hedge real-world exposures, or at least to provide useful information for real-world decisions. For example, bets on elections, the weather and court decisions are economically relevant even if they are not directly related to capital raising or used as hedges. They differ from gambling by being primarily games of skill in the long run, not chance."
To make matters even more cloudy, we still don't know what prompted the FBI to raid the New York City apartment of Polymarket's founder, Shayne Coplan last November.
To be continued we suppose....
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