Mention the idea of speculation around a casual investor and you might get some stern reactions. It's often linked with bad decisions by financial giants. To many, it's akin to gambling but using investor funds rather than personal money.
Speculation's bad reputation isn't entirely unjustified. It's been central to some notable market downfalls. Yet, all investment involves weighing risks against rewards, and speculation is just a bet that the risk is worth the potential gain.
Let’s delve into what speculation truly is, what purposes it serves in the market, and why it might be crucial for keeping crypto at the cutting-edge of tech.
Defining Speculation
As hinted earlier, investing carries a certain degree of risk for the potential of returns. Speculation sits on one extreme of this spectrum, while near-guaranteed investments like bonds sit on the other. Safe investments are backed by well-known risks and rewards, often secured by a higher authority, typically the government, making them less risky but also less rewarding.
Speculation magnifies this principle. The investor embraces higher risks expecting that the hefty profits will balance the potential losses.
Investments differ from gambling due to the calculated efforts involved. Gambling, while sometimes requiring skill, relies heavily on chance. In speculation, risks are understood, and every effort is made to gather insights and analyses to maximize success, minimizing the role of chance. roulette A significant part of speculation's tarnished image comes from poorly researched or ill-intentioned investments. With risk, success stories are counterbalanced by tales of failure.
From Tulips to Bitcoins
A legendary example is the Tulip Mania of the 1630s in Holland, where tulip prices soared briefly before crashing, showcasing how rampant speculation can lead to financial downfall.
In many instances, including the tulip craze, it’s unclear whether it's speculation or gambling. Today, similar speculative vehicles, like cryptocurrency, are prevalent.
Debates continue on whether Bitcoin's current high value is sustainable, raising fears of a possible bubble burst.
This particular group of investors often receives criticism, labeled as parasites or manipulators, stirring up volatile markets. As speculative funds chase dubious ventures, the actual value assessment gets skewed.
Some investors gamble rather whimsically, while others employ sound technical analysis and have a decent grasp of the tech. Regardless, they are speculators navigating the high-risk, potential high-reward nature of crypto markets.
Even those barely informed about crypto speculation contribute to its growth. They inject the capital needed for both legitimate and questionable projects, which is vital for market dynamics.
Advancing the Market
Crypto's nature seems made for speculative investments. Unlike tulip bulbs, cryptocurrency is inherently difficult to counterfeit, offering a secured and transparent investment arena.
Read: Hunting for the Next Bull Run
No one today can expect such rapid gains from traditional markets as seen with cryptocurrency, which exists on a completely different tech and financial level.
Speculators in new tech realms, similar to pioneers, shoulder substantial risks hoping for big rewards while inadvertently paving the way for more traditional, capital-rich investors.
While speculators often carry a stigma, they’re not unlike historical pioneers looking beyond the present frontier. These risk-takers may sometimes decide poorly, but their actions have paved inroads for future investors.
Oliver Dale, the Editor-in-Chief of Blockonomi and founder of Kooc Media, advocates for open-source software, blockchain tech, and a fair internet for all.
References
- http://theconversation.com/financial-speculation-the-good-the-bad-and-the-parasitic-33613
- http://www.drchaos.com/cryptocurrency-speculation-the-good-bad-and-questionable/
- https://www.forbes.com/sites/laurashin/2017/12/20/blockchains-are-for-speculation-and-thats-a-good-thing/#3a180d157b7a
- http://citizensoftheworld.io/cryptocurrency-speculation/
- https://www.investopedia.com/ask/answers/09/difference-between-investing-speculating.asp
