What Is The Intrinsic Value of Bitcoin?
It’s a common question many nocoiners ask: What is the intrinsic value of Bitcoin?
Determining the intrinsic value of Bitcoin, 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 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 he 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 fiat currency, and while it has similar features to gold, it also has many more.
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.
- Uncorrelated asset
Bitcoin’s Intrinsic Value Comes From Its Security
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 400,000 times more powerful (secure) than the most powerful supercomputer.
Bitcoin’s cryptographic security is second to none and ensures its intrinsic value in tis department is unrivalled.
Bitcoin’s Intrinsic Value Comes From Its Decentralization
Bitcoin is a decentralized network. It’s a protocol that is downloaded on thousands of nodes and millions of mining devices, and they’re 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 and more valuable.
Bitcoin’s Intrinsic Value Comes From Its Immutability
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.
We can’t say this for gold or fiat currency.
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.
Bitcoin’s Intrinsic Value Comes From Its Scarcity
Bitcoin is the only verifiably scarce asset in the world. 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? Of course they will.
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’s Intrinsic Value Comes From Its Utility
If fiat currencies are good for one thing it’s their utility. Whether it’s the US dollar, The British pound, 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 make Bitcoin valuable?
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.
Many are predicting the biggest markets’ downturn since the Great Depression, so 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.
Dollars and other government issued currencies used to have gold backing them as value, but as we know governments defaulted on their gold-backed currencies.
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, it just gets more valuable with every new block.
Author: Tommy Limpitlaw
Can I get into Bitcoin without money?
Absolutely! Bitcoin is like other investments and currencies. If you have some money to invest, you can make more faster by buying Bitcoin. You can lose more faster, as well, if you don’t know what you’re doing. But if you don’t have any money to invest you can earn free bitcoins from playing games, learning about cryptocurrencies, or offering your skills for Bitcoin.
Can you lose money on Bitcoin?
You certainly can lose money on Bitcoin. Many new investors see the gains Bitcoin has made and expect it to always be so. But the truth is, Bitcoin’s gains have come from buying Bitcoin and holding on long term and riding the market. People expecting only gains, quickly lose faith when it crashes and lose money. The best way to avoid losing money is buy Bitcoin and hodl.
Where is the best place to buy Bitcoin?
There are many great places to buy Bitcoin, and it all depends on your preference. You can buy Bitcoin on typical cryptocurrency exchanges, such as Binance and Kraken. Or you can buy it from peer-to-peer Bitcoin marketplaces, such as Paxful and LocalBitcoins. You can also buy Bitcoin from Bitcoin ATMs. It all depends on your location and preference. Check out our reviews of each exchange here…
Can you buy less than 1 Bitcoin?
Yes. Every Bitcoin can broken down into 100 million bits. They are known as satoshis, after the pseudonymous creator Satoshi Nakamoto. And some companies will let you buy as little as $1 worth of Bitcoin, which at time of writing is worth about 11,000 satoshis. There are many companies that have a system for dollar cost averaging (DCA). This is a great way to buy Bitcoin, and is known in the space as ‘Stacking Sats’. Basically, what you do is set up small automatic, recurring payments to buy Bitcoin (or sats), and you DCA over time.