At least traditional modern financial instruments still have some connection to an underlying real-world market, even if they are 10 layers of financial abstraction removed from reality. They can also always sort of justify it by saying that it provides liquidity and so on.
Harder to justify what the point of Bitcoin financial instruments is though, since it can't really be used for much at all in its current state. Maybe if it stabilized and became a proper store of value (whether the incentives to keep a cryptocurrency stable are even there remains another question), but now it's just so hype driven.
I guess ultimately 'the point' of it all it doesn't matter, people can trade in imaginary goods no problem. Still exposes the strangeness of modern financial markets.
The same will hold for Bitcoin almost surely. The fraction of transactions that are speculation and the fraction of holdings that are speculations are very different things. Most stock market transactions are speculation but they don't hold capital for very long. But most stock holdings are not speculation, they're just boring holdings of assets by pension funds, retail investors, etc.
> That's pretty much what people use stock market for anyway
That's what I used to think until I began to understand (through Mr Money Mustache posts) that lots of people with large amounts of money invest (i.e. buy-and-hold) in the stock market because, despite the annual ups and downs, it has historical net annual gains of 7-10% over the last hundred years...
> Investors try to build something while speculators just try to make money, no matter the cost to anybody else.
Based on your definition, what would you call Carl Icahn then?
I tend to agree with John Bogle's definition that both types of people are in it for the money, the only fundamental difference is the time horizon either is willing to wait to reap the returns from their investment.
The main difference between investment and speculation lies in the time horizon. Investment is concerned with capturing returns on the long-run with lower risk, while speculation is concerned with achieving returns over a short period of time. Bogle believes this is an important analysis to be taken into account as short-term, risky investments have been flooding the financial markets.
> Anybody that holds an financial instrument for less than five years (my definition) is a speculator.
So you think for instance that someone who puts all their income into a savings account, taking from it during the month to pay their expenses, is a speculator?
There are uses for short-term financial instruments other than speculation, for instance protecting the principal from inflation.
I'd argue that some investors - the angel / startup investors - are gamblers, they place their bets on 100 startups and bet that one of them will be the next Facebook and eventually either sell for billions, or go to the stock market itself to get billions.
The more traditional investor gets a stake in a company and due to that stake gets a say in the running of the company, thus having an influence on its future and growth (or decline). Less of a gamble there, it becomes part of their own responsibility then.
It's a shame that there isn't a common word in English to distinguish between positive-expected-value gambling and negative-expected-value gambling. They are fundamentally different pursuits.
Harder to justify what the point of Bitcoin financial instruments is though, since it can't really be used for much at all in its current state. Maybe if it stabilized and became a proper store of value (whether the incentives to keep a cryptocurrency stable are even there remains another question), but now it's just so hype driven.
I guess ultimately 'the point' of it all it doesn't matter, people can trade in imaginary goods no problem. Still exposes the strangeness of modern financial markets.