How Speculative is Bitcoin & Why?

We realize here at FintekNews world headquarters that we have covered a whole lot of bitcoin stuff recently, BUT (to our defense) that’s because an historical event just happened (by the way, we predicted this a long time ago) when bitcoin exceeded the price of gold. Here’s a very good insight on factors that influence the price of bitcoin in case you need affirmation for our point of view. Speculation is, of course, a major factor in any asset when the price has a significant price increase, but there are many other considerations that must be taken into the equation.

(Bill Taylor/CEO)

“Today, I was asked “How much of Bitcoin’s value is driven by speculation”. This is my answer…

This is a great question! While the value of any commodity is determined by supply and demand, speculation is one component of demand. Another is the unique utility value inherent in a product or process. This is sometimes called ‘intrinsic value’.

It’s ironic that when a high fraction of value is driven by speculation, short-term value becomes volatile and long-term value becomes less certain—and less likely to produce returns for those same speculators.

(Editor’s Note: In the past few weeks, a significant spike in Bitcoin’s value and trading volume relates to a pending regulatory decision expected at the end of next week. This activity is certainly driven by speculation. But for this article, I am considering periods in which the demands of individual events are less clear.)

The value of Bitcoin is influenced by:

  • Day traders who buy and churn
  • Long-term speculators who buy and hold. This includes me.
  • Criminals who hope that cryptocurrency transactions can be more easily hidden than government backed currencies
  • Early adopters who use Bitcoin as a payment instrument or to send money
  • Vendors who accept the coin in exchange for products and services
  • Vendors who retain a fraction of revenue in Bitcoin (rather than exchanging to Fiat). To avoid a round trip exchange, they seek to purchase materials or pay staff with the Bitcoin they earned….”

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