Quote from: rebuilder on November 29, 2013, 12:34:01 AM

I don't particularly believe one way or the other at the moment. Looking at the charts for the last few hours, the swings seem to be much wider than before, but it's pretty early to say.

What I'm getting at here is:

-The general consensus answer I've seen here is that speculation is good since it provides liquidity.
-Similarly, the general consensus answer seems to be that liquidity decreases volatility. (makes sense on the face of it)
-Ergo, increased speculation should lead to decreased volatility. And lo, we have a live experiment!

That's all, really. If my point was fuddled before, I apologize. It is late.

i think your conclusion is flawed. yes, speculation provides liquidity, but that doesn't necessarily mean that it increases it substantially enough to decrease volatility. plus, since the bitcoin market doesn't allow leverages shorting, the speculation can only come in on one side. so no matter what, there is an imbalance. there will be less liquidity for the buyers to get into positions

suppose you own a house and you need to sell, but there is only one buyer. this market is not very liquid at all. he will pay whatever he wants and you will meet him at his price. the market is illiquid and therefore price will be volatile.

'speculation' usually gets a bad rap in the press as being bad. but nothing is inherently bad or good. its simply supply and demand at work.