Some in the bitcoin space claim they are only in it for the technology, maintaining that the price of bitcoin doesn't matter much to them.
Whether they are just pretending or really mean it, they are overlooking an important factor that keeps the bitcoin network safe and healthy: the price of bitcoin.
Lyn Alden did an exemplary job of describing why the price of bitcoin matters in the following post:
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Because money is a network good.
Liquidity feeds more liquidity. And finally, sufficiently ample liquidity fuels stability, making it more usable. Which then fuels more liquidity.
It's similar to why we are here on this platform, whether we like the recent owner or not.…
– Lyn Alden (@LynAldenContact) twitter.com/LynAldenContact/status/1716617268660945279?ref_src=twsrc%5Etfw”>October 24, 2023
His main points included:
- The more liquid bitcoin becomes, the less volatile and more usable as money it becomes.
- Price is a 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) was designed to counter fiat (an infinite asset), its price should increase as more liquidity is injected into the system (i.e. as more fiat is printed or more debt is created) .
I would like to contribute to Lyn's argument by including the following points:
- The security of the bitcoin network depends largely on the number of people or institutions mining bitcoin. As the block subsidy decreases every four years, the price of bitcoin has to continually increase so that miners remain incentivized to mine the asset.
- bitcoin's price increases its legitimacy: the closer bitcoin's market capitalization gets to the market capitalization of gold, the more investors see the assets as comparable.
- An increase in the price of bitcoin incentivizes holders to continue doing things to keep the network healthy, 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 excited when the price of bitcoin hit a new all-time high this week, good for you.
Even if you weren't necessarily thinking about the points mentioned above when the price of bitcoin hit new highs, it's also okay to just be happy about having greater purchasing power.
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