In this article we will argue about Bitcoin’s Intrinsic Value.
Many investors believe in the intrinsic value of assets, and even though some investors like certain aspects and benefits about Bitcoin, they still think that there is no value to it except faith.
So let’s start by defining what Intrinsic Value is:
Intrinsic value is a measure of what an asset is worth. This measure is arrived at by means of an objective calculation or complex financial model, rather than using the currently trading market price of that asset.
In financial analysis this term is used in conjunction with the work of identifying, as nearly as possible, the underlying value of a company and its cash flow. In options pricing it refers to the difference between the strike price of the option and the current price of the underlying asset.
— Investopedia
Bitcoin Believers Vs. Skeptics
Bitcoin has gone up in price parabolically, and also has lost over 90% of its value numerous times since it was created over 12 years ago.
This makes many skeptics question the actual capabilities that Bitcoin has as a store of value.
To believers what makes Bitcoins be valuable is digital scarcity, as well as being an asset virtually uncorrelated with any other asset.
“I made the wrong decisions on Google and Amazon.”
– Warren Buffett
Another property that makes Bitcoin attractive is that is secured by cryptography and computational power that keeps growing and getting more powerful, the reliability and robustness of the network presents itself as the most secure, decentralized, digital asset in existence.
This makes Bitcoin perfect for today’s digital age as there is no risk of data breaches or security risks for their users.
Is Bitcoin an Alternative Investment?
Experts argue that there might not be a similarity between Bitcoin and other more traditional financial assets, which begs the question. Is Bitcoin an alternative investment option?
Real State for instance, is part of the alternative investment industry estimated to be worth $10T. When deriving intrinsic value of real estate, there are a number of factors to be considered such as:
- Market prices of similar properties
- Rate of Return
- Depreciation
This makes pricing Bitcoin with these method extremely challenging.
Store of Value
Some argue that Bitcoin is simply a currency with no intrinsic value, just a unit of account and medium of exchange with no reasonable argument to be considered a trusted store of value. Although, the fixed supply 21 million BTC makes it not elastic enough to work as a currency.
“To be successful, money must be both a medium of exchange and a reasonably stable store of value. And it remains completely unclear why Bitcoin should be a stable store of value…I have had and am continuing to have a dialogue with smart technologists who are very high on Bitcoin — but when I try to get them to explain to me why Bitcoin is a reliable store of value, they always seem to come back with explanations about how it’s a terrific medium of exchange. Even if I buy this (which I don’t, entirely), it doesn’t solve my problem.”
– Paul Krugman 29
