Thoughts On the Big Fluctuations In Bitcoin’s Value

THOUGHTS ON THE BIG FLUCTUATIONS IN BITCOIN’S VALUE

(Image from wikimedia commons)

It might not necessarily be a bad thing that the price of bitcoin sometimes plummets, at least not if its price had been pushed up way too high, perhaps due to overly optimistic speculation and fraudsters looking to profit from people’s gullibility.

So long as there is a fundamental utility attached to an asset, it has genuine value. Speculation is based on how much scope for evolution and growth that utility has. Steem and steem dollars, for example, are not ‘money from nothing’ but rather a crypto token that is rewarded for posting and curating content on a blockchain-based social network. The more value content creators bring to steem, the more steem is worth. If speculators believe Steemit could be a Facebook killer, that would push the price of steem up, as they risk investing their capital in a gamble that Steemit will be all they hope. Bitcoin’s value is based on its being a peer-peer currency (‘Money Over Internet Protocol or MOIP if you will) and one might speculate that this relatively young asset class has potential to grow.

Of course, if wildly optimistic speculators believe a cryptoasset will grow larger and faster than is realistically feasible, then reality is bound to bite and the bubble will burst. But free market advocates always tell me that this just takes out the less capable innovators, leaving a more lean and efficient group of value creators (fraudsters should also be weeded out, as people become more educated in what signs to look out for, although how you stop cheats evolving more subtle and sophisticated scams is never really explained).

In short, we shouldn’t necessarily think that the price of a cryptoasset going up is always good or that its losing value is always bad. Sometimes assets need correcting from fake value produced by exuberant speculation and get-rich quick scams.