Speculation is Only a Means to a (Greater) End
Speculation and crypto have always gone together. To many outsiders, they are the same thing. This was always inevitable, if not intentional. Nakamoto’s first objective was to build a better payment system. The fluctuating value of Bitcoin as a means of securing the network was a part of the design — arguably the most innovative part — but it wasn’t the goal. The goal was to build a new kind of financial infrastructure: borderless, frictionless, and free of censorship.
It turns out the killer app of that infrastructure was speculation, an activity that became even easier to partake in on newer chains offering tokens and smart contracts.
Speculation is a good thing. Markets couldn’t exist without it and we need markets to innovate and grow. But speculation is also a dangerous thing, particularly when it turns into a bubble.
Bubbles are also a good thing — eventually. They bring attention and capital to a new idea and accelerate development and adoption. But bubbles can be devastating. Depending on their size and scope, they can cripple societies indefinitely.
Crypto has had multiple bubbles in its short history. The ease of trading, global footprint, and total-addressable market (TAM) of re-architecting trust make for an explosive cocktail, and the lack of generally accepted valuation frameworks make it easy for participants to fantasize prices will climb to the moon. But it’s a long way down once the music stops.
There is now a vocal minority within the industry that openly celebrates the speculative fervor. I agree with them, up to a point. Crypto is still confusing and the UX is bad, so a bit of fervor helps get the next wave of adopters over the hump. Fervor also attracts entrepreneurs and pairs them with investors willing to fund their ideas. We can even point to past bubbles and the resulting benefits: Better exchanges and key management (2013), smart contracts and dApps (2017), DeFi, NFTs and different approaches to consensus (2021).
But every one of those bubbles also hurt people. They led to negative perceptions that took years to undue and regulatory blowback for which we are still paying the price. So there has to be a line where a reasonable observer could say “OK, we’ve now gone too far and everyone needs to calm down.” We are now at that point for memecoins, particularly on Solana.
How do I know this? Because many of the reasonable people I know, including those who’d agree with almost everything I’ve said, are diving in. Most of them know the coins they are flipping will end up worthless but are compelled to participate while the going is good.
Their behavior is best explained by the famous (then infamous) comments made by a former bank CEO at the height of the housing bubble, that as long as the music is playing, you’ve got to get up and dance. Judging by the surging activity in joke coins, it’s a full on rave.
That’s all well and good, and some of these participants might be smart enough to come out ahead — though the ultimate winners will be scammers, validators and MEV attackers. Most of these memecoins will end up worthless and most people who participate — particularly the newer entrants — will lose money.
Is that a tragedy? Not necessarily — but it means the industry has a lot of growing up to do. I’m all for gambling as a form of entertainment — nobody questions the legitimacy of the MGM Grand or FanDuel. But in crypto we aim to build something more impactful than a better casino.
Speculation is a necessary part of the process, but we should remember that it’s only a means to an end. There is a point of diminishing then negative returns where excess speculation takes away from the rest of what we are trying to achieve, and the 5000th bullshit memecoin is probably it.
Not gambling advice
