The altcoins and startups failed as investments but the Just Dice house bank was stellar; returning more than 32% per year plus entertainment value! House bank investment is now available on many bitcoin gambling sites but as I we found out on our real life dice investment comparison results are mixed at best.
How does investing in the house bank work
When gamblers bet against the house it must have a pool of funds available to pay from when the gambler wins. This pool of funds is known as the house bank. The bigger the house bank is the higher the bet limits can be as a bigger house bank can afford to make bigger payouts.
Normally the house bank comes from the site operator themselves but in the bitcoin gambling investment model anyone can invest in the house bank. When a gambler wins, his payout comes from the house bank and all investors lose money. When a gambler loses, his money goes into the house bank and all investors make money.
Given there is a mathematical advantage to the house, the house bank and all investments in it should increase over time.
How much of the gamblers’ losses you get depends on what % of the house bank you have provided. If you have provided 0.3% of the house bank you will get 0.3% of the profits or losses. Well nearly; the operator takes a % of the house profit, typically 10%. This is called a 10% commission on investors’ profits. So if you invest 0.3% of the house bank you will make 0.27% of the house profit with 0.03% going to the operator.
How much can you make
To work out how much you can expect to make on a bitcoin gambling investment platform you need to multiply the investors edge by the amount of times the house bank is turned over per year then apply compounding. That will give you the expected annual return.
expected annual return = investors edge x turnovers per year
investors edge = house edge – commision
turnovers per year = 365 / turnover length in days
For example a 1% house edge with 0.1% commision to the site gives as a 0.9% investor’s edge. If the bank takes 30 days to turn over that is 12 turnovers per year that would give us an expected annual return before compounding of 10.8%
1% – 0.1% = 0.9%
turnovers per year
365 / 30 = 12
expected return before compounding
0.9% x 12 = 10.8%
Then use a compound interest calculator by plugin in the expected edge before compounding (10.8% in this example) as the “annual interest rate” and set the number of turnovers per year (12 in this example) as the # in “interest to compounded # times per year“. That will give you the expected annual return after compounding which in this case makes 11.13%.
House bank turnover is how long it takes an amount equal to the house back to be bet. To get this figure you have to check the sites stats and work it out manually. We calculated this and other key stats for all major operators on our dice investment comparison.
What are the risks
In the short term the gamblers betting against the house bank could win, causing investor losses. In the long term investors’ mathematical advantage mitigates this risk as does the fact that the operators limit the maximum bet to 1% or less of the house bank. This means if a gambler hits 5 max bets in a row the bank has only lost 5%.
The site’s operators could run of with your investment, have it stolen by hackers, lose all their records in a technical glitch or underreport profit. We detail the possible scams and how to prevent them here. Carefully choosing where to invest and heeding our reviews mitigates this risk.
The site could have your funds seized by anti-competitive law enforcement. You can leave an emergency withdrawal address with the sites to mitigate this risk.
All risks are reduced by diversifying your investments across multiple sites. For further examples and detailed explanations of the invest in the house bank model see each sites investment product detailed on their website.
Alternative investment models
There is one other bitcoin gambling investment option that we are familiar with; buying shares in Bitcoin Rush at Havelock Investments. Havelock Investments is a bitcoin denominated stock exchange run out of Panama. It is a good platform that allows anyone to invest in bitcoin related companies with no barriers to entry such as minimum investment amounts or ID requirements.
One such listing is Bitcoin Rush which pays dividends and produces investor reports. We don’t recommend this option as we think Bitcoin Rush have an uncompetitive product that has been superseded in the marketplace and questionable integrity. We still think this investment is an interesting option, the likes of which we hope to see more of.