The Bitcoin Fallacy: Why its Value Could be Flawed and How Traders Still Profit
Is its Value Flawed?
Bitcoin was made to be a future currency, but for the most part it currently exists as an asset of pure speculation. Reasons for its speculation or value proposition is discussed below.
Secure Exchange + Blockchain:
- Bitcoin offers additional utility over cash because of the nature of the blockchain.
- The blockchain creates a decentralised store of value - which is useful for storing wealth outside of traditional financial systems.
- Use cases: hyper inflationary countries, authoritarian regimes.
- The blockchain allows for borderless transactions.
- Whilst anonymised, the blockchain is transparent and provides full visibility of its money supply and transactions.
Current Utility Deficiencies:
- Volatility - it is a speculative asset.
- Regulatory uncertainty:
- Classification of Bitcoin as a commodity/property rather than currency (exposing it to tax for transactions in the US, holding bitcoin in Europe can come under capital gains tax).
- Ban risk (already implemented in China, Nigeria, Turkey).
- Fiat access (crypto businesses often lose access to banking services: operation choke point 2.0 US, Australian banks cutting access to crypto exchanges citing fraud).
- Licensing hurdles worldwide.
- User experience hurdles, lack of infrastructure and software for mainstream adoption. It is still relatively complicated for the average person to access and transact Bitcoin, it has not been universally adopted as a source of payment, and factors to do with uncertainty means many people do not currently trust or will trust its use case.
Scarcity Equation:
- Classification of Bitcoin as a commodity/property rather than currency (exposing it to tax for transactions in the US, holding bitcoin in Europe can come under capital gains tax).
- Ban risk (already implemented in China, Nigeria, Turkey).
- Fiat access (crypto businesses often lose access to banking services: operation choke point 2.0 US, Australian banks cutting access to crypto exchanges citing fraud).
- Licensing hurdles worldwide.
(Credit to Joseph Sweeney on Medium for his article showcasing this idea)
It is capped at 21 million Bitcoin - giving it a finite supply. Scarcity often drives value in classic examples like gold.
However, Bitcoin is digital and so its finite number can be practically subdivided many times over.
Gold does not suffer this as its usability diminishes the more you split it up.
Once bitcoin reaches its cap of 21 million - its perception of scarcity can easily change as it becomes sub divided - which undermines its value in the idea of it being scarce.
However, is this just the nature of any currency? It’s value proposition is not completely built on scarcity, but confidence it will retain purchasing power.
It is being adopted for its security, efficient exchangeability (decentralised so can be used worldwide), and still retains a strong policy in that the supply is fixed - protecting it from hyperinflation. Its total supply can only really shrink - considering things like lost wallets and safeguarded supplies (e.g. illiquid government funds).
However, I think the current demand includes the concept of perceived scarcity, and its ability to be subdivided may eventually slow down or reduce demand if this starts to occur. A lot of people investing now may be disillusioned about its fixed supply like it means this ‘currency’ will be infinitely valuable.
I think a fixed supply gives bitcoin a valid policy against inflation, but people need to realise its supply can be made to feel ‘relatively’ bigger if and when bitcoins are continually subdivided for practical use. Providing bitcoin does have a practical use case in the future…
Institutional Backing:
An increase in institutional backing has increased perception of trust in Bitcoin’s future use case. It legitimises Bitcoin as an institutional-grade asset, not just a fringe speculation, and enhances confidence in its long-term value. I personally believe this should not be treated as a green light or true indication that its value/future value is justified, but many optimistic speculators will treat this as such.
Recent examples of large-scale institutional backing:
- Harvard University’s $116 million allocation into BlackRock’s iShares Bitcoin Trust in 2025 (a spot Bitcoin ETF structured as a grantor trust with approx. $86.17 billion under management).
- Since approval in 2024, U.S. spot Bitcoin ETFs - including BlackRock’s - have attracted between $138-143 billion in assets under management. Growing support from RIAs, pension funds and asset managers.
This has in turn decreased Bitcoin’s volatility by increasing liquidity and also through a persistent buy-side presence rather than the boom-bust retail cycles often seen. Although this isn’t really the case as 50% annualised volatility is still extremely high compared to traditional assets, so retail-driven boom-bust cycles remain a driving part of Bitcoin’s market structure.
Source: Coin Telegraph, tradingview.com
Institutional backing (including ETFs) have made the market less volatile, but until the bulk of trading volume shifts from high-leverage retail speculation to low-turnover institutional holding, boom-bust cycles will still define its volatility profile.
Bottom line: Institutional backing adds to the adoption narrative, but is surely not a seal of confirmation for Bitcoin’s value. History tells us that institutions can get big investments horribly wrong.
Overall:
The disalignment between its future use case and widespread adoption and its actual adoption will be its downfall. Can speculation really continue on the promise of its future use case the more we continue into the future whilst its adoption remains limited?
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Bitcoin is mainly run off technicals, as there is a lack of strong fundamentals behind such a speculative asset, and I think some technical analysis (TA) is groundless.
After reading about technical analysis to better understand it for my own commodity trading interests, I started to think some of it lacked merit. I think parts of technical analysis can be very useful as indicators, and also for helping to appropriately time trades, but a lot of it potentially misguided without any fundamental analysis.
This made me think about how technical analysis is primarily used for the day-to-day trading of Bitcoin because it often lacks any fundamental context.
From kids gambling on it to larger retail traders/trade houses, they all use technical analysis to trade Bitcoin on a short-term basis - primarily chart reading.
I almost believe a lot of technical analysis, especially in regards to people who actively trade bitcoin, a self-fulfilling prophecy.
If enough people are doing it, then it actually becomes real in the crypto markets. And from what I have noticed, most crypto traders solely trade on their ideas of technical analysis.
Added context: Between institutional and retail traders, direct Bitcoin spot trading still accounts for roughly 75% of market activity, compared to about 25% from ETF share trading (The Block, 2025). ETF flows tend to be associated more with longer-term investment horizons, whereas spot trading is more often tied to short-term speculative activity.
1. Bitcoin as a Primarily Speculative Asset:
- Beyond reactions to greater economic conditions or changes, and even specific crypto related factors like policy or innovation, Bitcoin’s price discovery relies far more on sentiment, liquidity flows and narratives than on traditional valuation metrics (fundamentals). In such an environment, technical analysis becomes the driving decision framework people use.
2. The Prevalence of Technical Analysis in Crypto:
- Technical analysis becomes the primary driver for such a speculative asset that lacks fundamentals. TA only requires - in basic terms - price/volume data. This is readily accessible on any crypto exchange. And in fact it sort of becomes the only accessible form of data when there aren’t really fundamentals in its price beyond macroeconomics - which evolves into a form of sentiment for an asset that is speculative.
- For a lot of retail traders, social reinforcement also comes into play for technical analysis, as crypto twitter, telegram and discord groups often share the same chart patterns and “key levels”. We have to consider the demographic of bitcoin traders too which plays into this. A Morning Consult study (2024-2025) found that 74% of crypto traders are men, and tend to be younger, often millennials (effectively ‘tech natives’).
3. The Self-Fulfilling Prophecy Effect of Technical Analysis:
- Herding: If enough traders believe a level matters - say $30,000 support - they place stop-loss orders just below it or buy orders above it. That level then becomes important, regardless of fundamentals.
- Reflexivity (George Soros’ concept): Market participants’ beliefs influence the market reality, which in turn reinforces those beliefs.
- Example: A “bull flag” pattern spotted by thousands of traders - maybe even shared around Bitcoin networks - prompts buying —> price rises —> pattern “works” —> confidence in technical analysis grows.
- Especially in thin liquidity conditions (during off-peak hours), coordinated retail action on a chart level (e.g. resting orders on the $30,000 ‘support’) can move price enough to trigger follow-on moves from algorithms and market makers.
- Works when:
- Many traders watch the same levels (e.g. psychological round numbers: $20k, $30k, $50k).
- Liquidity is relatively shallow enough for collective action to move price.
- Leverage amplifies order cascades (e.g. because a lot of Bitcoin traders use high leverage, even small price moves can trigger automatic liquidations, which create forced buy or sell orders. These consequently push the price further in the same direction, causing more liquidations in a self-reinforcing cascade).
- Fails when:
- A large institutional player overwhelms the retail herd.
- Unexpected macro news is actually enough to break traders technical analyses of chart levels.
- Liquidity is deep enough to absorb speculative flows without major moves.
- Over very short-term horizons (intraday to multi-day), TA-driven speculation is the dominant driver of bitcoin price action.
- Over long-term horizons (multi-month to multi-year), macroeconomic factors (which influence how much money and credit is circulating in the economy, affecting how much flows into risk assets) and adoption narratives have more influence - but TA still shapes the path the price takes to get there.
- In Bitcoin, TA isn’t “predictive” in a casual sense, but self-reinforcing because enough people believe in it and act accordingly.
3. Final Words
So my intuition has lead me to believe that you can profit from day trading bitcoin if you understand the psychology behind how the majority of traders approach it. Understanding their unwavering beliefs in how the patterns work.
I would also go as far as to say a lot of retail crypto traders do not care about its true value - they’re in it to scalp and they all seem to do it in similar ways.
So as an investment it is dangerous because sentiment can turn quickly in such a speculative asset. We have seen how dramatic its volatility has been in the past. This may have reduced because of institutional backing - supporting its narrative and deepening liquidity - but its volatility remains high.
I would also be weary of treating institutional backing as green light for Bitcoin’s promised future.
Will the promises, future use and ultimate value of Bitcoin come to fruition? I would treat that assumption with absolute caution…
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