Bitcoin Speculators and Enthusiasts

August 8th, 2019

Bitcoin is a tool for commercial anonymity and escaping oppression dressed as a get-rich-quick scheme. The former is for the long-term and the latter for the short-term. Depending on what people view Bitcoin as, we can put them into two categories: speculators and enthusiasts.

Speculators celebrate new highs in price, positive media coverage, opportunities for buying cheap, etc. Enthusiasts celebrate new lows in volatility, commercial adaptation, and the easing of commercial activity using Bitcoin.

Speculators are needed in the short-term for the purposes of (1) raising awareness about Bitcoin and (2) raising its price. The first reason for their necessity of existence is pretty obvious: Bitcoin cannot become a popular currency for commerce without many people being aware of it. The second reason is what this essay is about.

Price changes in Bitcoin and other speculative (for now) assets have a snowballing effect. Due to speculators being burned by missing out on Bitcoin's cents-to-$20k price rise, or its $20k-to-$3k plunge, they are very eager to get in and out of Bitcoin at the right times. But since these speculators are usually not blessed with a sixth-sense for the market or an extremely high tolerance for risk, most use social signals to decide their trades. If they see Bitcoin's price rising, they buy. If they see it falling, they sell. Price movements snowball.

Due to this snowballing effect, every rise in the price of Bitcoin brings along new speculators that want a piece of the potential future profits. This is good for the mass adaptation of Bitcoin as a currency owned by few will not be traded for assets by many (duh!).

While in the short-term, speculators play a crucial role, in the long-term, they're detrimental.

Let's digress and talk about deflation. Deflation is, simply put, the opposite of inflation. It is when prices go down over a time period - when currency becomes more valuable in comparison to asset prices. In periods of deflation, purchase and the consumption of assets plummet. People think to themselves that if something is going to be cheaper in a year, then they have no reason to purchase it now.

It's the same case when Bitcoin's price goes up. Bitcoin's price goes up --> the currency (Bitcoin) becomes more valuable compared to what you can buy with it --> asset-per-Bitcoin deflation occurs --> fewer purchases made using Bitcoin. In other words, when Bitcoin's price seems to have an upward trend, it disincetivizes people from purchasing things with it. Bitcoin's price increase results in the opposite of its final goal of commercial adaptation.

Speculators may have been needed and new highs in prices may have been needed to be reported until mass awareness about Bitcoin (and I don't know if we're past that point yet), but anything causing a price increase after that point is just a barrier to popular commercial adaptation, and goes against the end-goal of Bitcoin.

I'm not proposing gatekeepers for Bitcoin purchases -- that would be very ironic. I'm just reporting a phenomenon.

Enthusiasts celebrate lows in volatility, not highs in price.