What is the role of the bitcoin “speculators”?

I will argue that speculative bitcoin traders are playing an essential and crucial role in bitcoin’s development and maturation, and will continue to play an important role as they do with every currency and asset.

Many argue that “speculators” (a problematic term in and of itself) are harmful for the bitcoin ecosystem as they introduce volatility and instability to bitcoin’s value. Without the speculators the exchange rate may have been less volatile, however with so little trading volume one could argue the opposite: speculators bring price stability with their liquidity. In my opinion, the main driving factor for price volatility is simply the fact that bitcoin is young and fascinating. Bull and bear can switch very quickly and very often when the value being determined is a novel invention currently undergoing many tests and experiments. Price volatility is an obvious side effect of relatively low trading volume and the uncertainty in this invention’s value in utility and trade. The solution to price volatility being to bring in more speculators and to start using bitcoin for anything possible.

Bitcoin doesn’t have a marketing or public relations department. This plays out well for it in some cases, and worse in others. Leveraging the decentralized nature of bitcoin requires that marketing must be built-in to the system. In other words, the best way for bitcoin to advertise itself is in it’s supply/demand mechanics. Disinflation is a nice feature in bitcoin but most people are unaware of inflation in fiat anyway, so it is not too helpful here. Instead, the fact that there is no central bank adjusting supply according to demand plays a huge role in bitcoin getting attention. The rallies caused by speculators with potentially %1000’s profit that occur every so often (and are quite uncontrollable seeing as supply in bitcoin is predetermined) attract the attention of many who had not seen bitcoin for all its technological and social innovation. People of the bitcoin community are clearly aware of this phenomenon and has been colloquially known as “the bitcoin seasons”, where the ecosystem become much more lively during rallies and thereafter.

Ultimately, every investor is a speculator. Whether you’re long for 20 years, you’re long for 5 minutes, or you only bought bitcoins in order to make a single purchase the next day, you are generating temporary demand for bitcoin which you will eventually either lose or sell. It is true that if all the demand is generated at the same time and extinguished shortly thereafter it is not as desirable, however I find it hard to tell people who generate any form of temporary demand for bitcoin that they are harming the ecosystem. Speculators are a significant part of the reason bitcoin is valued at roughly $600, and the reason people take bitcoin as seriously as $600.

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