Some in the Bitcoin world claim they are just in it for the technology, claiming that the price of Bitcoin doesn’t matter much to them.
Whether they’re just posturing or really mean it, they’re overlooking an important factor that keeps the Bitcoin network safe and sound: the price of Bitcoin.
Lyn Alden did an exemplary job of describing why Bitcoin’s price matters in the following post:
Because money is a network asset.
Liquidity creates more liquidity. And ultimately, sufficiently ample liquidity provides stability, making it more usable. Which then fuels more liquidity.
It’s similar to why we are here on this platform, whether or not we like the recent owner.…
— Lyn Alden (@LynAldenContact) October 24, 2023
Her main points included:
- The more liquid bitcoin becomes, the less volatile and more useful it becomes as money.
- Price is a market signal: Five years of stagnant price action would send a negative signal to the market about bitcoin’s value.
- If bitcoin (a finite asset) is designed to counter fiat (an infinite asset), its price should rise as more liquidity is injected into the system (i.e. as more fiat is printed or more debt is created).
I would like to further Lyn’s argument by including the following points:
- The security of the Bitcoin network largely depends on the number of people or institutions mining Bitcoin. Because the block grant decreases every four years, Bitcoin must continually rise in price so that miners remain incentivized to mine the asset.
- Bitcoin’s price contributes to its legitimacy: the closer Bitcoin’s market cap is to gold’s market cap, the more investors view the asset as comparable.
- A rise in the price of bitcoin encourages holders to continue doing things to keep the network healthy, such as running nodes, and defending the network against its adversaries. As Jeff Booth finally says: “We are Bitcoin”, and its success depends on us.
So if you were excited when Bitcoin’s price hit a new all-time high this week, good for you.
Even if you weren’t necessarily thinking about the above points when the price of bitcoin reached new highs, it’s also okay to just be happy about increased purchasing power.