This study explores a critical and under-examined issue in cryptocurrency economics: the forfeiture of transactional benefits—such as lower costs, global accessibility, and anonymity—when cryptocurrencies are used for trading rather than for transactions. We question why rational investors engage in cryptocurrency trading despite this loss, and how such behaviour affects price dynamics. Departing from traditional literature that attributes cryptocurrency valuation to fundamentals and sentiment, we develop a single-agent model—drawing from Biais et al, (2023)—to explicitly incorporate the loss of transactional benefits. Our model reveals that for trading to occur, investors must hold a minimum level of optimism regarding future prices, making this sentiment a prerequisite rather than a consequence of market behaviour. We demonstrate that increased trading, relative to transactional use, elevates cryptocurrency prices only if sentiment surpasses this critical threshold. Conversely, under constant price equilibria, heightened investor allocation to cryptocurrency trading leads to declining crypto prices and rising standard currency prices. This work presents a novel theoretical framework for understanding the role of optimism and lost utility in cryptocurrency markets, paving the way for empirical validation and future multi-agent extensions.
