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From my understanding speculation is one of the reasons bitcoin works as a payment mechanism. If bitcoin was literally worth 0, any one company could decide to
by Kinrany 3y ago
From my understanding speculation is one of the reasons bitcoin works as a payment mechanism.
If bitcoin was literally worth 0, any one company could decide to make money on it by using Bitcoin as their personal stablecoin. That would be enough to facilitate payments: one person buys BTC from the company above the fixed price, the other person sells below the fixed price.
But thanks to decentralization any other company can jump in and start doing the same, compete on the spread of prices.
If the price of BTC is too low at a certain time, all of available BTC gets tied up in transactions. There is more demand for BTC-minutes in that hour than there are BTC-minutes. So the companies can temporarily raise the price when they see it happening.
This makes the price of BTC float above the peg depending on the amount of BTC available for sale and the load on the Bitcoin-as-payment-mechanism network. And if the peg is low enough, it is never really reached.
If this theory is close enough to truth, then the instability of Bitcoin really is fundamental: less of a design flaw, more of a (rather severe) trade-off.
Though I wonder if it's possible to construct a stable derivative based on future estimates of the load on the network: a unit that can be used to compare prices of BTC-minutes at different times in the future.