Ode to speculators

As a good friend of mine says, “Everyone hates bankers until it’s time to pay the bill.”

The same can be said for crypto speculators. The common rejoinder amongst those who wish they were crypto rich, but who are too scared or lazy to jump in, is that crypto won’t last because the only use case is speculation.

It is true that the number-one use case for crypto is speculation. However, without these unwashed speculators, would anyone outside of a few technologists really care a fig about this industry?

Building infrastructure

What makes a coin valuable? At a fundamental level, most coins need some sort of usage. A coin with a dedicated community is able to attract users and talented developers to improve the protocol. The technology ideally will be useful, but that depends on the quality of work produced.

But if you are a developer, how do you decide which project to devote your time to? If you are a user, how do you first hear about a new coin or project?

Forums, IRC, Twitter, and eventually traditional technology-focused media outlets are the first to pick up on new trends. It is difficult to find a worthy project while wading through the Internet sewer of questionable content. The eureka moment occurs not when just one person discovers something new and useful, but when a group of like-minded folks are moving in the same direction on the path to enlightenment.

That is the slow approach. The faster and more popular approach is to use some objective measure to determine whether a group of people believe in a new coin or project a priori. The best objective measure is a market-determined price. One of the best facets of this industry is that most projects possess a tradable asset. The price, traded volume, and market cap reflect the market’s judgement of the value of a project.

When a price goes up and to the right, that validates those already working on the project. It also creates a desire for others to join the revolution for fear of missing out. This positive feedback loop lays a solid foundation for a project to scale and possibly realise its vision.

Fake news

Think back to how you first heard about Bitcoin. For me, it was a Zero Hedge article about how the price had shot up, to a then all-time high of $250 in April 2013. The sharp price rise intrigued me and prompted my further investigation. Only then did I read Satoshi’s white paper and become a believer.

I imagine that most readers have a similar story. The mainstream media’s most popular stories usually deal with someone making a lot of money in a short period of time. In our hyper-competitive and fast-paced world, everyone is trying to spot the next thing. They too want to discover the next Netscape, Google, Amazon, and Facebook. You too can sell books, give TED talks, go to Burning Man, and wear a puffy vest that shows off your mega biceps in your 50s.

Most people learned about Bitcoin through the media. Back in 2013, any major news outlet writing a story about Bitcoin could send the price up or down, depending on the content. Developers and punters use media outlets to determine what new skills to learn, and which new assets to HODL.

The media needs a constant stream of volatility for them to continue to write about an asset class. That is why you rarely see articles about the intricacies of the bond markets. It is boring because the volatility is low. Equities, however, are sexy. They have stories, and their prices at times move violently on new developments.

The media now loves crypto because the coins move. There is a constant flow of news. There are outrageous personalities who lead projects and own large stashes of coins. The crypto industry appeals to the emotions and greed of the public, and a new euphoria is palpable — a euphoria that central banks and regulators destroyed in the traditional asset markets.

Ode to speculators

Developers, users, and investors all depend on a horde of uncouth speculators to create a liquid market for crypto coins. I say uncouth, because many financial outlets regard retail investors as stupid. Retail investors don’t work at white-shoe investment banks, wear formal business costume, or read The Economist for pleasure on the weekend. Yet, the craze is led by these hooligans.

A new class of millionaires and billionaires were created from a stock of undesirables. The memes, language, and behaviour of many of the leading figures have no place at large banks and technology firms. But these people speculated that crypto could change the world.

Of course, the financial media and vaunted figures such as Jamie Dimon would pooh-pooh crypto as a cesspool filled with retail speculators. It would be unimaginable for them to endorse a market they don’t understand. However, there is also a disturbing trend of disdain toward said speculators even among even those who grew famous within the industry because they contributed to an asset class that has grown by hundreds of billions of dollars in one year.

Rather than complaining about the wild gyrations of the crypto markets, a more appropriate response is to express gratitude that crypto isn’t as boring as the S&P 500.

But what are they used for?

Bitcoin is the most mature crypto coin, and it is less than a decade old. Many of the coins that people love to hate are less than one year old. In another decade, it might be appropriate to ask, “Where’s the beef?”

Right now as a trader or HODL’er. you want as much volatility as possible. That drives more smart engineers into the industry, more users to interact with the technology, more crypto media articles, and liquidity from new retail punters.