People inside and outside of cryptocurrency usually write the industry off as just “speculation”, implying there is no real adoption or utility. Unfortunately for these people, the reality of traditional finance seems to be lost on them. Because speculation is not just an important part of financial markets, it is vital for long-term sustenance.
Whoever said speculation implies no utility had their perception of markets backward. Speculation is a critical component of price discovery, market efficiency, and profitability.
The way the world has shaped up in the last few years has led people to believe the very notion of profits is unethical. While this holds true to some extent, as crony capitalism runs rife globally, calling the very concept of “profiting” unethical is vastly misguided.
In the oil markets, speculators provide liquidity to oil companies looking to secure a guaranteed price for the barrels they produce. Without this liquidity, oil companies will bear the brunt of price volatility, putting the business’ viability and the fate of millions employed by the industry at risk.
Now think about this for every single volatile commodity. Copper, aluminum, steel, corn, hogs, cotton, on, and on, and on. If you came in thinking speculation is useless, do you still think that after realizing speculation guarantees safety to millions of employees and businesses that need stability to survive?
Speculators often profit from providing this liquidity, yes, but is it unethical?
Let’s look at this a little more philosophically. How can we expect speculators to bear the brunt of risk for billions, even trillions of dollars worth of trade and not adequately compensate for it? Not doing so would be to abolish the semblance of meritocracy that exists today.
Coming to Bitcoin, the very same concept is recreated. If we want Bitcoin to become a dominant form of payment, considering the P2P model it utilizes that eradicates intermediaries, speculators become the primary source of liquidity and efficient price discovery for the market. Without speculators, Bitcoin would be liquid and market asymmetries would run wild. Nobody wants that except the naysayers.
There is a new breed of anti-speculation hitmen that channel their newfound anger specifically at Bitcoin and the broader cryptocurrency market. These are people who have made their wealth and name in the stock market, private investments, real estate, and other markets.
Their intentions are not sincere. Because the very fact that Warren Buffett, a man who made over $50 billion speculating on stocks, says that Bitcoin is just speculation is evidence of that.
According to Buffett, there is a difference between investing and speculating. As per this distinction, there should be 0 risk in Buffett’s “investments”. Yet there isn’t.
He saw a good company, he saw value, he made an investment. It could have all shot down to 0 overnight, but it didn’t. That, everybody, is speculation.
Speculation is a use case, and it’s an incredibly important use case for every single market – not just Bitcoin.