Hello, everyone. In this post we will tell you about speculations and their relation to the cryptocurrency market.

We’re going to take a look at what exactly speculation is, what role it fills in the market, and why it might be a necessary evil to keep the cryptocurrency on the bleeding technological edge.

What is a speculation?

All investing involves measured amounts of risk in return for expected amounts of reward. Speculation is at one end of that spectrum, while virtually guaranteed investments, like bonds, are at the other. In so-called safe investments, the amount of risk is known to all parties, as are the rewards. There is no way to completely eliminate risk in any kind of investing, but low-risk investments are generally time-proven and undersigned by some kind of higher authority — usually a governmental entity. The trade-off for all this security is a relatively low payout. Since the investor is taking on relatively little risk, the rewards are again relatively small.

Speculation operates on the same principle, writ much larger. The investor takes upon him or herself a relatively large chunk of risk with the expectation that the profits gained will be worth the potential loss.

Speculation involves trading a financial instrument involving high risk, in expectation of significant returns. The motive is to take maximum advantage from fluctuations in the market.

While gambling can involve skill elements, no one could fairly describe it as a form of investment due to the large role of chance. In speculation, while risks are a given, there is a reasonable effort by all parties to do the homework and the legwork necessary to make the investment a success. There is no cast dice, no spun roulette wheel. In a well-executed speculative investment, the speculator understands the risk involved and believes the information or analysis he or she is relying upon is solid enough to beat that risk and ultimately reap the financial reward.

The main speculative vehicle of our time, however, appears to be cryptocurrency.

What is the speculation’s role in the cryptocurrency market?

Even the most uninformed speculator plays a role in pushing the market as a whole forward. Speculators prime the pump for legitimate and illegitimate projects alike, providing capital — which is neither good nor bad, but essential for the market’s functioning. Speculation also attracts investors to the field who don’t otherwise care about cryptocurrency. From casual buyers to big banks, the concern isn’t with privacy or tech — it’s about money, pure and simple.

Indeed, cryptocurrency may just be tailor-made for speculative buying, and it’s hard to argue with that natural tendency. Cryptocurrency, unlike the tulip bulbs of old, is difficult to counterfeit or cheat. A bag of bulbs is relatively easy to swap with a similar bag, so even a well-researched investment can go down the tubes. Not so a Bitcoin, which by its very nature is signed and secured by the programming that makes it up. The market is new and fresh, and so speculators have the opportunity to reap huge rewards by betting on the right projects.

Virtually no one in this day and age is going to be able to claim thousands of percentage point gains in traditional commodities — or companies, for that matter. Cryptocurrency is simply on another technological and financial scale, completely. And this is perhaps the greatest role for the speculator in the nascent cryptocurrency market. New technology is scary. It’s unproven, and it’s in fact highly likely to fail. It also has massive, unbounded potential.

Within the lifetimes of many readers, the internet evolved from an academic and military tool to a necessary part of day-to-day life. Cryptocurrency shares that same potential. It has already gone from a niche hobby of anarchic privacy phreaks to the halls of Goldman-Sachs. Speculators absorb this enormous amount of risk, taking their lumps and their rewards as they go, and make the market more palatable to casual investors. By absorbing the shocks and growing pains of the cryptocurrency market, speculators pave the way for more established — and well-capitalized — interests to step in and solidify the market when the time is right.