What Is The Intrinsic Value of Bitcoin?
It’s a common question many nocoiners ask: What is the intrinsic value of Bitcoin? However, determining what gives Bitcoin its value, or any asset for that matter, isn’t as straightforward as it might seem.
While some assets’ intrinsic value are clearer than others, the truth is ‘intrinsic value’ could be different for different people, and people will generally look for results to suit their cognitive bias.
But intrinsic value can be measured, and Bitcoin’s features make it arguably more measurable than other assets.
What Is Intrinsic Value and Why Does It Matter?
Rather than work out the intrinsic value of Bitcoin, let’s first look at what it means exactly.
‘Intrinsic value‘ is a term often used to estimate an asset’s worth through the use of fundamental and technical analysis.
There’s no universal standard for calculating the intrinsic value of an asset, but determining the qualitative, quantitative and perceptual factors of an asset we can assert value.
Intrinsic value is not a definitive gauge of an asset’s overall value either, and the market value of the asset might not coincide with the intrinsic value.
When this happens and both metrics deviate, opportunities to profit arise for savvy investors.
However, if both metrics are close, investors can use the ‘intrinsic value’ as validation that the market value of an asset is fair.
What Is The Intrinsic Value of Bitcoin?
Many say Bitcoin is like gold, or even fiat currency, and while it has similar features to gold, it also has many more features. So what gives Bitcoin its value?
Likewise with fiat currency. Of course you can spend Bitcoin. It might not be accepted everywhere, but you can use it to buy things, so it’s similar to fiat currency in this sense.
But again, Bitcoin has many more uses than being a way of transacting value.
Many people say Bitcoin has no intrinsic value because there is no underlying asset backing it. However, Bitcoin doesn’t gain its value from an underlying asset, but instead from its features.
Cryptocurrency exchange Kraken compiled a report looking into the intrinsic value of Bitcoin and concluded the following features are what gives Bitcoin its intrinsic value:
- Security
- Decentralized
- Immutability
- Scarcity
- Utility
- Uncorrelated asset
Security Gives Bitcoin Value
Bitcoin is the most secure network ever created. It goes without question that hackers have been trying to hack it ever since it came into the public conscious, and still it has never been hacked.
The Bitcoin hashrate secures the network and it has an estimated 800,000 petaFLOPS cryptographically hashing each and every block.
Those blocks contain the transactions and they’re all part of the Bitcoin blockchain, and as each block is added another layer of security is also added.
The most powerful supercomputer, IBM’s Summit is capable of producing 200 petaFLOPS, so Bitcoin is 4,000 times more powerful (secure) than the “most powerful supercomputer”.
Bitcoin’s cryptographic security is second to none and ensures the leading digital asset’s value in this department is unrivalled.
Decentralization is One of Bitcoin’s Key Features
Bitcoin is a decentralized network. It’s a protocol that is downloaded on thousands of nodes and millions of mining devices, and they’re all distributed around the world.
By distributing power to as many different locations as possible, the possibility of a central entity seizing control of the Bitcoin network is nullified.
Any centralized protocol can be edited at the will of its owner. With no central point of control, however, Bitcoin cannot be changed by any person or even a powerful conglomerate.
The nodes and mining devices all work together to ensure the security and integrity of the Bitcoin protocol.
For any change to the Bitcoin protocol to materialize, it has to earn the majority vote of the nodes and miners. Remember that’s some 800,000 petaFLOPS.
And as more people and companies flock towards Bitcoin and either mine or run a node, it will naturally become more decentralized, secure and more valuable.
Bitcoin’s Immutability Makes It The Leading Digital Asset
The Bitcoin protocol is designed to incentivize network validators to verify past and present transactions. And in doing so it makes it virtually impossible to alter anything that has been added to the Bitcoin blockchain.
In a world where things can easily be duplicated and/or altered, we are always at risk of fraud. Bitcoin’s immutability guarantees against fraudulent transactions and the possibility of counterfeit bitcoins. And its this immutability that helps give Bitcoin its value.
We can’t say this for gold, fiat currency or other digital assets. There are many stories of people buying fake gold, or even corporations and governments making fake gold.
How much money is in counterfeit notes? There is literally billions of dollars of fake currencies floating in the system.
Bitcoin cannot be counterfeited and no transaction can be deleted once it’s added to the Bitcoin blockchain.
This immutability makes Bitcoin a reliable and secure as a store of value and a money everybody can trust, much more so than gold or money. And one of the many reasons that gives Bitcoin intrinsic value.
Bitcoin Is The Scarcest Asset Ever
BTC is the only verifiably scarce asset in the world, and this is what gives Bitcoin its value more than most other features.
Of course, gold is scarce along with silver, platinum and other minerals, but nobody really knows how scarce they are.
How much gold is there really? What happens if a huge amount is found tomorrow? An unlikely event indeed, but it is possible.
And the way governments are printing money, many believe we could see gold rocket to $5,000 an ounce.
If this happens do you not think it will incentivize companies to invest in mining equipment to find more gold? Just like they did with oil and fracking.
Of course it will, and human ingenuity and greed will discover more gold, because it will be more worthwhile.
If the price of Bitcoin goes up and more money is invested in mining equipment the only thing that can happen is the security of the network will strengthen.
It’s impossible to mine more bitcoins, and there can only ever be 21 million.
We can’t say that for government issued fiat currencies of course. This year alone the Federal Reserve has printed 22% of the entire dollars in US history.
A staggering $9 trillion has been printed in the last 12 months, and what intrinsic value does all this new, free money have? None really, and it’s a fools game keeping value in government fiat currencies long term.
Bitcoin Can Be Much More Than a Store of Value
Part of Bitcoin’s intrinsic value coms from it being the most secure place to store wealth. And while this is a fantastic feature for Bitcoin, it can become much more than a store of value.
If fiat currencies are good for one thing it’s their utility. Whether it’s the US dollar, British pound, or the Argentinian peso, people all around the world transact daily with their government issued currencies.
We have to. It’s all we know – or have known. We never really had an option before, but now of course we have Bitcoin.
Sure the dollar is working for most Americans, and the pound is working for most Brits, but ask Argentinians how their peso is working. It isn’t.
Since defaulting in 2001, when the peso was on a 1:1 par with the US dollar, Argentinians have had to watch as their wealth has evaporated. At time of writing you can get 78 pesos for every dollar, but check back tomorrow and it has likely fell more.
It’s not just Argentina, most developing countries have failing currencies, and many of their people are turning to Bitcoin.
But Bitcoin’s utility doesn’t stop there. Bitcoin is programmable money, which needs no third party verification.
With the Internet of Things set to roll out in the coming years, there are expected to be over 5 billion smart devices all part of it.
All smart devices will be able to transact with each other. And they will also require a common currency they can trust.
With Bitcoin this can be done without the need of expensive third parties, which fiat currencies need.
And with layer two technologies like Lightning Network built on top of Bitcoin, smart devices will be able to send microtransactions to each other in milliseconds for fractions of a penny.
The value of this is impossible to quantify at the moment, but eradicating the need of a third party, by using a currency you don’t even need to trust is invaluable.
Bitcoin’s Intrinsic Value Comes From Its Uncorrelation To Other Assets
In Bitcoin’s almost 12 years of existence its uncorellation to all other assets is clear to see.
Many will argue that it is correlated to the stock market or gold this year especially. That might be true in short spells, but if you compare the long term Bitcoin chart with every other asset we can see that the correlation is minimal.
But why does this give Bitcoin its value?
Many believe Bitcoin to be a risky asset, and it is riskier than some, but all assets are risky, just ask Kodak, Hertz, or Blockbuster investors.
And with the state of the global economy, other than FAANGs the markets are pretty much all in decline. And all assets are in decline against Bitcoin (BTC).
Many are predicting the biggest market downturn since the Great Depression. Therefore, Bitcoin’s uncorrelation with stocks, could prove to be a good way to diversify an investment portfolio.
Having Bitcoin in a portfolio reduces overall portfolio risk and savvy investors know this, just ask Wall Street legend Paul Tudor Jones.
Bitcoin’s Intrinsic Value Comes From It Being Bitcoin
Some might say ‘intrinsic value’ is a subjective term, but many assets can be objectively valued, and Bitcoin is probably the easiest to quantify.
Gold and dollars have intrinsic value. Gold has been around since the early evolution of money, and will always be respected.
Government issued currencies used to have gold backing them as value, but as we know governments defaulted on their gold holdings. The Gold Standard didn’t work, and can’t work.
No doubt gold is valuable, but Bitcoin has much more intrinsic value.
Which other asset can we say for sure how many there are? None. Which other asset is as secure as Bitcoin? None. Which other asset can we easily guarantee isn’t fake? None.
Which other asset is as useful and trusted in the digital age as Bitcoin? None. Which other asset is uncorrelated to all other markets as much as Bitcoin is? None.
Bitcoin might not be tangible in physical form, but that doesn’t matter for a store of value or a money.
Bitcoin’s intrinsic value comes from its inception, and it gets more valuable with every new block.
