Discuss: Why the cryptocurrency discussion is going nowhere

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The arguments around cryptocurrencies are polarized. You are either for or against cryptocurrencies—no middle ground.

Some of the arguments against it are:

1. Cryptocurrency is too speculative.
2. Cryptocurrencies are susceptible to scams.

Cryptocurrency is too speculative

The common response I personally hear from the proponents of cryptocurrencies is this: “If it’s speculative, how come bitcoin has risen 300 percent this year alone, making it the best investment for the past decade?”

Let’s pause to agree on terminology. In a simple market, there are two types of demand: real and speculative. Real demand is from people who would actually use cryptocurrency to purchase or sell goods. Speculative demand is from people who would acquire the currency and hope to resell it for ROI (typically in traditional currency).

Speculative demand is a dangerous gambit. As long as it is a significant component of the overall demand for cryptocurrencies, there will always be that risk of speculators selling for traditional currency. This will cause the market to crash and destabilize or destroy the value of the currency overnight. And while it’s dog eat dog for free markets, the burst of such a speculative bubble will hurt many individuals.

To address their concern, proponents need to discuss ways to increase real demand and minimize speculative demand. Real demand comes when cryptocurrency holders are indifferent about using cryptocurrencies to purchase goods and services vs holding it for appreciation. However, such important discussions are overshadowed by the all too familiar argument that “bitcoin has risen x percent this year alone.”

Cryptocurrencies are susceptible to scams

I’ve personally heard proponents respond to this argument by saying: “The financial industry itself is a scam. Look at how many people lost money during the global financial crisis.” This ignoratio elenchi fails to disprove or even address the concern that scams may proliferate in an unregulated currency market like cryptocurrencies. ICO scams, pyramid scams, and pump and dump can occur.

Proponents should discuss ways to protect the market and investors such as trading halt rules, governance to pursue market manipulators, and so forth. While I realize this goes against the common philosophy of a decentralized currency, proponents need to seriously consider ways of minimizing market manipulation while maintaining decentralization.

These are just a few examples of the disconnected arguments I’ve been hearing from both sides. For proponents of cryptocurrencies, emphasizing the returns or attacking traditional financial systems is counterproductive. The end goal is to develop a stable yet decentralized currency. The elements of this goal should be promoted as reasons for the potential success of cryptocurrencies and not how much bitcoin’s price has increased over the past few months.

As long as the discussions remain disconnected, cryptocurrency, the disruptor, will ultimately lose to the incumbent traditional fiat or commodity money.

The onus, therefore, is on the proponents of cryptocurrencies. They must address the real concerns around cryptocurrencies if the momentum of disruption will continue.

Let’s discuss