Some in the Bitcoin space claim that they are only in it for the technology, while emphasizing that the price of Bitcoin does not matter much to them.
Whether they are just posturing or whether they really mean it, they are ignoring a key factor that keeps the Bitcoin network safe and healthy – the price of Bitcoin.
Lyn Alden did a perfect job of describing why Bitcoin price matters in the following post:
Because money is a good network.
Liquidity breeds more liquidity. Eventually sufficiently broad liquidity fuels stability, which makes it more usable. Which then feeds more liquidity.
It’s similar to why we’re here on this platform whether we like the last owner or not.…
– Lyn Alden (@LynAldenContact) October 24, 2023
Its main points included:
- As Bitcoin becomes more liquid, it becomes less volatile and more usable as money.
- Price is the market signal: Five years of stagnant price action would send a negative signal to the market about the value of Bitcoin.
- If Bitcoin (a finite asset) is designed as a counterpart to fiat currency (an unlimited asset), its price should rise as more liquidity is pumped into the system (i.e. as more fiat currency is printed or more debt is created).
I would like to help strengthen Lin’s argument by including the following points:
- The security of the Bitcoin network depends largely on the number of people or organizations mining Bitcoin. As block support declines every four years, the price of Bitcoin must continually rise for miners to remain motivated to mine the asset.
- Bitcoin’s price adds to its legitimacy: the closer Bitcoin’s market capitalization is to gold’s market capitalization, the more investors will view the asset as comparable.
- An increase in the price of Bitcoin incentivizes its holders to continue doing things to maintain the health of the network, such as running nodes, and defending the network against its detractors. After all, as Jeff Booth says: “We are Bitcoin,” and its success depends on us.
So, if you were impressed when the price of Bitcoin hit a new all-time high this week, good for you.
Even if you’re not necessarily thinking about the above points with the price of Bitcoin reaching new highs, it’s also a good idea to be happy about having more purchasing power.