The cryptocurrency market has been enduring a lot of price volatility over the past few months. Many not in the crypto space are taking advantage of this transient phrase to preach from their pulpits that cryptocurrency is a “bubble” or a “ponzi” scheme. However, others recognize that the complete story is much more complex. Sopnendu Mohanty, chief financial technology officer of the Monetary Authority of Singapore (Singapore’s Central Bank) said in an interview with CNBC “the speculators and the people who are making money out of this speculation of the cryptocurrency (market) are perhaps negatively impacting the whole experimentation of cryptocurrency.” How is cryptocurrency being negatively affected and what is causing this speculation?
To find the answer, an object’s/service’s market price can be broken down into two major consumer parts. The first is the directly known added value it provides to a user at the time of exchange (these users are not primarily concerned about speculating). The second is the believed future value a third party (speculators) believes it will provide to someone else at the future time of exchange. Speculators are essentially middlemen that operate in low information markets and across time to buy something low and sell it higher at a future date. Contrary to popular belief, speculators are not entirely bad since they are market makers by taking on a huge risk to buy something and pay the cost of holding that object/service until more people desire it and it can be sold again. Nevertheless, because of the little information and large risks associated with speculating, there is a wide potential value window that causes speculators to buy and sell quickly at the first few signs of good and bad news, respectively. Economists from Milton Friedman to William Baumol have debated whether speculation cause more or less stability. Cryptocurrency has experience heavy volatility, but cryptocurrency is also unlike what has previously been explored since it combines a payment method service with a currency.
The Search is Just Beginning
Cryptocurrencies have the ability to provide an immediate payment service to a user along with a speculation service. These two properties cause cryptocurrencies to behave both like a commodity service and as a speculative currency/derivative assets. Returning to Mohanty’s comments potentially reveals that cryptocurrencies are in a delicate balancing act and if too much speculation takes hold then the payment service could be “negatively impacted” by slower software development and/or government intervention. But how to keep speculation within a reasonable amount?
Over the relatively short life of cryptocurrencies, their users, their platforms, and their partnerships have all taken significant steps since their genesis blocks, but still relatively small steps compared to their potential. These advances all create direct use cases, which in turn create known added value to a current user. This known added value provides a more direct value for users to assign to a cryptocurrency’s worth – a.k.a its price/exchange ratio. Continuing along this path, more abundant information becomes available about use cases and future development. Thus, known added value becomes more concrete. The less uncertainty about future development causes a more narrow potential value window for speculators to speculate on. Thus, price volatility decreases. If the goal is to decrease speculation and volatility then the method is not necessarily to become a mature asset like a blue chip stock, but to simply grow and develop in a predictable way.
What about those that will still only see cryptocurrency as speculation? According to the Governor of the Bank of Japan, Haruhiko Kuroda, “Cryptocurrencies aren’t legal tenders and don’t have assets to back up their value” and they are “mostly used for speculative trading rather than a means of payments”, as crypto-lines reports. The Governor’s primary concern potentially seems to be that cryptocurrencies do not have assets baking them up and thus securing their use as means of payment. However, the fact is that the networks that makes up cryptocurrencies’ users and their developers are its assets. This has the potential to be seen like the many social networks that exist today that are traded and have value, including the social networks that accept USD, GBP, EUR, etc in exchange for goods and services. These social networks also do not have any assets (or at least significant assets) backing up their value other than believed future stability and the ability to tax and borrow from other network users. Thus, the cryptocurrencies that have the most reliable, stable, and predictable networks would best serve theses concerns.
A Currency, A Payment Method, and A Corporate Report
Dash, with its unique governance and treasury system allows for not only an organized and steady method of growth, but also a predictable method of growth. Anyone and everyone can make and see the proposals to the treasury and openly view the reports from Dash. A good comparison would be a corporation that embraced the open source initiative for all of their documents and decisions. Taking what I outlined above, this openness of information and clear growth path would decrease the volatility and further stabilize the network of Dash.
Palm Beach Research Group recommended Dash a buy up to $600 in November of last year, which Dash quickly achieved and surpassed and is now its current range. Then in Dash Core Group’s Q4 2017 Summary at 1:06:00 Dash’s volatility is shown to be lower than Bitcoin’s for the second quarter in a row. Also, as Ryan Taylor (CEO of Dash Core Group) mentioned, this is “pretty remarkable” considering that Dash has a smaller market cap than Bitcoin. Dash will continue to expand its network and not only create more added value, but also provide a clear road map on how it will provide added value in the future. This will cause Dash to narrow its speculative potential added value and increase its know added value and thus gain a less volatile price/exchange ratio. It remains to be seen whether or not Dash will be seen as a threat by central banks once its primary use case is in everyday commerce rather than market speculation. Nevertheless, if speculation is, in fact, “negatively impacting the whole experimentation of cryptocurrency” as Singapore’s Central Bank chief financial tech officer speculates, then Dash may be the best positioned cryptocurrency to reduce said speculation and be less threatening moving into the future.