Does Bitcoin have intrinsic value or is it based on nothing?
Bitcoin has no intrinsic value? Blockchain experts and government officials seem to strongly disagree on the issue.
In early March, Bank of England-appointed Governor Andrew Bailey said that Bitcoin had no intrinsic value. He controversially stated that any investor who owns Bitcoin should be prepared to lose all the money. Bailey said, “If you want to buy it, that’s fine, but understand that it has no intrinsic value. It may have an extrinsic value, but there is no intrinsic value. “
Over the past few years, many high-profile investors and government officials such as billionaire Mark Cuban, Warren Buffett of Berkshire Hathaway, and United States President Donald Trump have criticized Bitcoin for its lack of real value.
The argument why Bitcoin has no “intrinsic” value
In July 2019, President Trump echoed the views previously shared by Buffett and his trading partner Charlie Munger when he stated that Bitcoin’s value was “air based,” implying that it has no intrinsic value. At that time, President Trump said:
In July 2019, President Trump echoed the views previously shared by Buffett and his trading partner Charlie Munger when he stated that Bitcoin’s value was “based on nothing,” implying that it has no intrinsic value. At that time, President Trump said:
The argument in favor of the lack of value in Bitcoin derives from its origin: a network of decentralized and peer-to-peer miners, users, developers and node operators that has been operating since 2009 without the presence of a central entity or a group that oversees the blockchain protocol.
Therefore, the concept that a decentralized and completely open source network that is theoretically software is foreign to many investors. In 2018, Berkshire Hathaway Vice President Charlie Munger said that Bitcoin was “worthless artificial gold,” and described it as a piece of cunning computer science. CNBC Munger said: “Bitcoin reminds me of Oscar Wilde’s definition of fox hunting: ‘The quest for the inedible by the unmentionable.'”
Most of the negative stances towards Bitcoin and skepticism about its value stems from its distributed structure and digital nature. But, cryptocurrency industry executives and prominent operators of investment firms perceive the value of Bitcoin differently.
Cryptocurrency industry experts disagree
In an interview with Cointelegraph, BlockTower Capital chief investment officer Ari Paul explained that the value of Bitcoin came from the control it gives to users who own the asset. Bitcoin’s non-confiscable feature provides users with an unprecedented level of financial freedom compared to traditional assets.
Safe-haven assets like gold, for example, that investors predict Bitcoin would compete for in the long term, have seen many cases where gold in the hands of individuals was seized by governments in the past. Paul said to Cointelegraph:
“BTC is many things: its value comes as the only way to pay for Bitcoin’s blockchain space (also known as resistance to censorship as a service), but I would say that much more of its value comes from its resistance to seizures. If I want to store $ 1 of wealth in a way that can’t be arbitrarily seized by governments, I need to have $ 1 of BTC, regardless of the price per dollar of BTC. With that perspective, it’s vaguely comparable to the offshore banking system, which is about $ 30 billion. “
The argument that Bitcoin’s value comes from its resistance to seizure is aligned with sentiment from Wences Casares, the CEO of cryptocurrency wallet and custody provider Xapo. In an essay titled, “The case for a small allocation to Bitcoin” published in March 2019, Casares suggested that every $ 10 million portfolio should have at least $ 100,000 invested in Bitcoin with a long-term investment thesis.
Casares explained that growing up in Argentina, he saw his family lose their savings three times, and the last time was due to the unfair confiscation of assets.
Quantum Economics founder Mati Greenspan told Cointelegraph that whether Bitcoin had any “intrinsic” value depended solely on an investor’s perception of Bitcoin and the entire asset class. By definition, the term intrinsic value refers to the true, inherent, and essential value of an asset, commodity, or currency. But the value is subjective and often changes significantly depending on various circumstances.
As an example, before President Richard Nixon essentially eliminated the gold standard by not allowing the Federal Reserve to claim dollars with gold, the “intrinsic value” of the dollar came from gold backing. But when the gold standard was abolished, other countries began printing money and the inflation rate of reserve currencies began to rise.
It can be argued that the intrinsic value of a reserve currency is the government or the country behind it, but its value can change rapidly depending on various factors, according to Greenspan:
“Intrinsic value is defined as ‘an investor’s perception of the value of the asset’, so whether Bitcoin has it or not depends entirely on the prospective investor’s perspective. Perhaps it has no value to Mr. Carney at the moment, but it certainly has value for millions of other people around the world. “
Why can Bitcoin’s “intrinsic value” increase over time?
Despite the emergence of trusted custodians and strictly regulated exchanges that have contributed to the establishment of an infrastructure that rapidly improves market support, Bitcoin remains an emerging asset.
Since the Dow Jones fell sharply on March 12 due to high levels of fear of the coronavirus pandemic, Bitcoin has shown a high level of correlation with the US stock market. USA This close correlation has devalued Bitcoin’s image as a safe-haven asset. Before March 2020, BTC was never tested in an environment where the global financial market began to collapse and show signs of extreme uncertainty.
BTC’s volatility and correlation to equities this month are mainly due to the fact that its market capitalization is still around $ 116 billion. That’s just 1.37% of the gold market cap, which is $ 8 trillion.
As Bitcoin’s market capitalization increases over time, it will show less volatility and higher levels of stability, which would allow it to be seen as a safe asset in times of global market slowdown. Tyler Winkelvoss, the billionaire CEO of the US-based crypto exchange Gemini. The US recently said on the matter:
“Bitcoin is not a hedge for pandemics, it is a hedge for fiat regimes. A sudden and negative drop in demand in the global economy will affect all assets, including gold, in the short term. The world will go through this, but what Faustian negotiation in the long term? Bitcoin is not making any deals right now. It has the stamina and stamina to last infinitely in the game. “
With increased market capitalization, stronger infrastructure, increased liquidity, clearer regulatory frameworks, and higher levels of general awareness, Bitcoin’s value proposition can improve significantly in the next decade. And, eventually, the argument that Bitcoin lacks “intrinsic value” is likely to weaken, as its non-confiscatable feature, decentralized nature, and fungibility will add to the value of the asset.
Disclaimer: This press release is for informational purposes information does not constitute investment advice or an offer to invest. The views expressed in this article are those of the author and do not necessarily represent the views of infocoin, and should not be attributed to, Infocoin.