The Friends and Foes of Bitcoin
Keep your friends close and your enemies closer. When it comes to Bitcoin, it’s not always clear who is a friend and who is an enemy of the number-one cryptocurrency network. That’s why we’re taking a closer look at some of the different groups and institutions that may or may not be acting in the best interest of Bitcoin, and by extension, the cryptocurrency community in general.
Bitcoin is digital money. It requires no intermediaries to trade it across any distance or over any border. This is fundamentally different from how most national or fiat currencies work. To move modern money, you need to use the services of a bank, payment processor, or remittance service. These companies have made their fortunes on the simple fact that money is difficult to store, secure, and most importantly, move. So what happens when a new contender comes along that suffers from none of these weaknesses?
Banks generally fall into three categories when it comes to their stance on Bitcoin. In the first category, the bank either doesn’t care about cryptocurrency, or doesn’t acknowledge the existence of cryptocurrency. Most banks today fall into this category. The second includes institutions that are actively hostile towards Bitcoin. Some prominent examples of this would be Jamie Dimon of JP Morgan and Brian Moynihan of Bank of America. These banks (or at least their leadership) are openly anti-cryptocurrency and will typically refer to it as a bubble, pyramid scheme or scam in an effort to mislead the public about the volatility of cryptocurrency.
The third and final category includes banks that are openly pro-cryptocurrency. These institutions have leaders that express clear support for the cryptocurrency industry, are looking forward to offering services that relate to it, or are already beginning to dabble in the space themselves. Unfortunately, the number of banks that fit into the third category is only a fraction of the total banking industry.
Given the incredible power of Bitcoin and its potential to completely disrupt the entire global financial system, banks should be worried, or at least be very cautious.
Our take? Banks are foes. This will likely change in the coming years, however. As cryptocurrency becomes more of a threat to the big banks’ bottom lines, they will have no choice but to take a much stronger stance on their growing competition.
Modern currencies in circulation today are issued by governments and their designated central banks. These currencies are, in many ways, competing with each other for dominance and relevance. The more powerful a country is, the more likely the currency it issues will be desired by large corporations and Forex traders.
So how does Bitcoin fit into this?
In some ways, Bitcoin is just another competing currency trying to seek relevance and prestige. On the other hand, Bitcoin is an up-and-comer with a vastly higher degree of flexibility, autonomy, and hardness. Simply put, hardness means that it is immune to hyperinflation due to things like overprinting or so-called quantitative easing. It’s also, of course, straightforward to store and transmit.
Each government is different and has its own unique stance on cryptocurrency (if it has one at all). This attitude has ranged from neutral to optimistic to downright negative. The prevailing trend has been to be cautious but permissive. Most Western countries treat Bitcoin as property as opposed to currency. This means that they acknowledge its value but treat it differently than other currencies.
Acknowledging Bitcoin as an object of value is one thing; however, one excellent metric for determining a country’s stance towards Bitcoin is whether or not it will accept it as a means of paying taxes. Most nations only except their own currency as a means of paying taxes, since this gives the national currency an inherent and irreplaceable use case. Therefore, choosing to accept cryptocurrency means that the government in question is willing to take on a certain degree of risk by allowing a non-government issued asset to be used to pay taxes. So far, Ohio and a handful of other small countries accept Bitcoin as a means of paying taxes.
Finally, the value of a nation’s currency is, in many ways, a reflection of its strength and position on the world stage. If a currency suddenly drops due to lack of use, this could damage that nation's credit rating on the world stage and could cause it to lose face amongst competing nations. For this reason, most countries will likely be incentivized to discourage cryptocurrency adoption and instead may choose to merely tolerate it (at best) or try to shut it down (at worst).
Our take? Governments, in general, are a foe of cryptocurrency. There are a few exceptions, but for now, most nations would prefer you use their central bank issued notes.
HODLers make up an essential segment of cryptocurrency users. By definition, a HODLer is somebody who buys, or otherwise acquires, cryptocurrencies and then holds them for extended periods of time. Some HODLers will hang on until the value hits a target price before selling. Others will hold on to their digital assets no matter what happens to the price.
But are HODLers good or bad for Bitcoin?
Thankfully, this one is relatively easy to answer. HODLers represent a stabilizing force for cryptocurrency prices. When prices drop, HODLers will often buy more, which helps control the rate at which prices fall. When prices get too high, HODLers will sell, which can help to cool off an overheated market. In one sense, HODLers are the immune system of cryptocurrency. They help regulate and keep things in check through a natural and easy-to-understand process.
In addition to helping guide prices in a positive way, HODLers also help to restrict the supply of Bitcoin on the market. If there is too much Bitcoin for sale at any one time, prices will likely drop. Since HODLers are there to buy and keep coins off the market, they help restrict supply, which in the long-term, is good for cryptocurrency prices. It also encourages miners to continue mining, which is essential for network security.
Our take? HODLers are definitely friends of Bitcoin. So, keep calm and HODL on.
Speculators are one of the most controversial participants in today’s cryptocurrency markets. For those unaware, speculating is a term that describes buying something for the sole purpose of hoping to sell it later for a higher price and make a profit.
Speculators can have an unpredictable impact on prices and can lead to increased volatility on the market. It can be said with a high degree of certainty that the buying frenzy that led up to the 2017 bull run was likely fueled by thousands and thousands of new speculators joining in on the buying frenzy, causing prices to skyrocket.
Conversely, once the selloff began, speculators were also likely to blame for the selloff and ensuing bear market that followed. There were other factors at play, of course, but speculators undoubtedly played a significant part in this massive price movement, both up and down.
The reason why speculators are controversial within the cryptocurrency market is that they bring a degree of uncertainty to markets and can cause large price swings that make Bitcoin seem like an unreliable investment to the general public.
When prices rise too fast, big-name financial commentators will scream “bubble!” And when prices drop too quickly, those same commentators will quickly shout that Bitcoin is “dead”. Speculators also get a bad name based on the simple fact that they likely don’t care about the technology and ideology of cryptocurrency. Instead, many of them likely just want to make a quick buck through rapid trades.
Our take? Speculators are Bitcoin’s frenemies. They can definitely harm markets, but they can also help them by providing liquidity and generating interest and hype. Speculators are a force of nature, and there is very little we could do to stop them. However, speculators are a natural phenomenon in a new financial or tech product and are, for better or worse, unavoidable.
Friend or Foe, We Are All in This Together
It’s interesting to think about the different groups that are influencing cryptocurrency every day and whether or not they are ultimately helping or hurting Bitcoin. But the truth is, Bitcoin was designed so that it is malleable and can be influenced by anyone.
It is, in the most real sense, a purely democratic platform that passes no judgment, holds no political opinion, and has no goals. As such, Bitcoin, as it stands today, is merely a reflection of its community and all those who interact with it. In essence, we all are Bitcoin, whether our goal is to harm it or help it.
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