When you think about it, liquidity is the source of speculation.
This is because liquidity is the ability to quickly trade your thing for other things. Lending money via a certificate of deposit reduces liquidity because you are locking up your funds. Lending via demand deposits increases liquidity because the original deposit and the loan are both available to be spent immediately. Spending money on physical things is very time consuming. First you must pick what you want to buy among billions of product choices that are available to you. Even if you buy something, it takes time to drive to the store or for it to be delivered. The real world is quite illiquid which means that fiat currency is less volatile and has greater stability than Bitcoin.
Now there are two exceptions. Trading money vs financial assets and money vs other money. In the financial sector you are trading liquidity for liquidity. Buying an iPhone and selling it takes time. Buying Bitcoin and selling it does not. It can happen as quickly as technology allows it. This inevitably leads to speculation because it is possible to instantly react to any other transaction. Someone buys Bitcoin? Buy more! Someone sells Bitcoin? Sell!
To be more specific, the problem isn't liquidity itself but excessive amounts of liquidity that go way beyond what the real economy needs. This is a huge problem with fiat currency but it's also a problem with Bitcoin because the "Bitcoin economy" is absolutely tiny.
This is because liquidity is the ability to quickly trade your thing for other things. Lending money via a certificate of deposit reduces liquidity because you are locking up your funds. Lending via demand deposits increases liquidity because the original deposit and the loan are both available to be spent immediately. Spending money on physical things is very time consuming. First you must pick what you want to buy among billions of product choices that are available to you. Even if you buy something, it takes time to drive to the store or for it to be delivered. The real world is quite illiquid which means that fiat currency is less volatile and has greater stability than Bitcoin.
Now there are two exceptions. Trading money vs financial assets and money vs other money. In the financial sector you are trading liquidity for liquidity. Buying an iPhone and selling it takes time. Buying Bitcoin and selling it does not. It can happen as quickly as technology allows it. This inevitably leads to speculation because it is possible to instantly react to any other transaction. Someone buys Bitcoin? Buy more! Someone sells Bitcoin? Sell!
To be more specific, the problem isn't liquidity itself but excessive amounts of liquidity that go way beyond what the real economy needs. This is a huge problem with fiat currency but it's also a problem with Bitcoin because the "Bitcoin economy" is absolutely tiny.