For Crypto Speculation's Sake

To help protect investors, Dubai has issued crypto marketing regulations

For Crypto Speculation's Sake

International regulations will stifle the cryptocurrency market or attract new users?

I should point out that "speculation" is not a dirty term.

Recently, I and many others urged the crypto community to emphasize real-world use cases. We've insisted that the only way out of the crypto winter is to give up the "number go up" mentality that fueled so much pre-winter market activity and focus on issues that truly help society, like renewable energy projects. The argument is that for investments in decentralized finance (DeFi) to be more sustainable, the yields that attract investors must be based on services that offer more blatant economic advantages.

But after speaking this week to a group of credit union executives at an event hosted by the financial services firm Allied Solutions, I feel compelled to retract that statement. The question of how to satisfy the demands of the younger members of his credit union for cryptocurrency trading choices "without merely encouraging pure speculation" was posed to me by a member of the audience.

It initially seemed like a problem that related to my claim about "real-world use cases." Instead of the values associated with "crypto bros," if we could only stop the speculators, there might be a better story of this industry's growth and purpose.

However, despite how crucial it is to create true value, the query contained a misunderstanding on the value and aim of speculation. A market economy needs it to function. It is crucial to how we as a society choose which concepts, initiatives, or businesses succeed or fail. We require it.

The speculative process is lengthy and extremely volatile when it comes to emerging technologies that, on the one hand, have the potential to cause massive disruption but, on the other hand, clash with an existing system that is particularly established and politically entrenched. As the dot-com bubble drove prices for web-based businesses to unaffordable levels while simultaneously laying the basis for the boom of the Web2 era, we saw this in the early days of the internet.

Because of the magnitude of possible disruption and the extremely high obstacles to delivering that disruption, the cycles of hope and disappointment in the cryptocurrency market are much more dramatic. Because they lengthen the process a technology must go through before becoming widely used and realizing its full potential, those variables also prolong the period of speculative activity.

Take into account what bitcoin (BTC) aims to be. It isn't a brand-new style of vehicle like the Tesla or an improved payment service like Venmo. It is intended to replace a centuries-old monetary system. That includes overwhelming obstacles in the form of resistance to that change together with unimaginable opportunities for change—and profit. It encourages speculation and price volatility.

When academics discount bitcoin's potential as a store of value that can compete with gold (because to its volatility), they are holding it to an absurdly low bar.

How long do you think it took for gold to become recognized as the symbol of enduring worth in the minds of people? (Note: Gold's value was socially built over a very long period of time; it is not innate, despite the metal having properties that make it useful as a store of value.) Bitcoin has the potential to be a better, digitally native version of the same depoliticized form of money, but expecting it to instantly embody that status in everyone's minds is dooming it to failure and denying it the testing process it needs to attain it.

The jury is yet out on whether cryptocurrency projects will endure to demonstrate their value claims—for example, bitcoin's as "digital gold" and the Ethereum blockchain's as "global computer"—and its members should be given enough time to make their decisions. Investors will unavoidably speculate in the interim as to whether each achieves its pertinent status.