While speculation plays a major role in crypto, their potential reaches much further. Cryptos facilitate cross-border transactions, enable decentralized finance, and support smart contracts—transforming financial systems. Are they just speculative assets, or could they transform global economic structures?
This was the point of debate at Breakpoint, 2024 featuring Tarun Chitra, CEO of Gauntlet, who spoke on how speculation, saying it is inherent to all forms of money, including cryptocurrencies. People often seek to profit from price fluctuations, and this behavior is heightened in crypto due to its censorship resistance, meaning no authority can control transactions.
Chitra argued that speculation, or the buying and selling of assets for profit, will likely dominate crypto activities. This is because money inherently functions to store and measure value, is scarce, and tends to be stable, making it ideal for trading.
With censorship-resistant money like crypto, there are fewer restrictions on creating new assets and finding buyers. This results in numerous assets being created, spreading liquidity across multiple areas. Consequently, there is constant trading between these assets, further encouraging speculation.
He noted that each time a new crypto asset is created, it diverts liquidity from older assets, creating a cycle of increasing trading activity. This cycle renders trading the most lucrative endeavor on the blockchain.
Because crypto is not easily controlled or restricted by governments—who might, for instance, require banks to maintain a certain cash reserve—speculation persists. To curb this, a novel use for cryptocurrency would need to offer greater value to the entire network than trading does, which he thinks is highly improbable.
Crypto is beyond speculation
Vibhu Norby, CEO of Drip, views cryptocurrency as an anti-speculative technology. However, he acknowledges that humans have a tendency to speculate on everything, even when it’s unnecessary. According to Norby, cryptocurrency is among the most transparent systems ever created. Blockchains allow everyone to access all relevant information at all times. This transparency reduces traditional speculation. When everyone receives the same information instantly, there’s less room for uncertainty and, consequently, less speculation.
Norby elaborates on this by comparing on-chain and real-world lending. In the real world, lending is credit-based and involves significant speculation because lenders may not fully understand the assets against which they lend.
On-chain lending is more straightforward. When borrowing againsta an NFT, the loan is linked to the clear, on-chain value of the NFT, minimizing room for speculation. Most loans in crypto are fully collateralized, backed by the full value of an asset, which further reduces speculation.
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He acknowledged that some might argue that crypto tokens appear highly speculative due to their rapidly fluctuating prices. However, he believes this volatility stems from the market discovering the true value of tokens in real time.
This price discovery occurs almost instantly on fast chains like Solana, exposing the lack of real value behind many tokens. This rapid process reduces long-term speculation, as the market quickly identifies which tokens are worthless.
Crypto is speculative but has innovative technology
While he had stated that crypto is inherently anti-speculative, Vibhu Norby offered a counterargument. He acknowledged the presence of speculation in crypto, especially with volatile tokens, but contended that price discovery occurs much more rapidly in the crypto market compared to traditional markets. Consequently, speculative bubbles tend to burst sooner in the crypto space.
Norby argued that the scope for speculation will diminish as blockchains become faster and more efficient—mentioning platforms like Solana. He envisions that quicker, more transparent systems will ultimately lead to a reduction in overall speculation over time.
For Norby, while exchanges currently dominate the crypto ecosystem and may appear speculative, emerging innovations, particularly in consumer-facing projects like Drip and Solana, will eventually surpass the speculative nature of current exchanges.
He believes that while speculation is key to attracting capital, the future of crypto will be driven by practical applications.
