The Value of Bitcoin’s Neutrality

A case for Bitcoin’s monetary value amid a global transformation of the economy

Lucas Outumuro
6 min readJun 23, 2022


Following a decade of quantitative easing, the global economy is starting to feel the unintended consequences of this proverbial money printing. Through central banks’ interventions in the economy, developed nations were able to surpass many of the financial troubles arising from locking down during the Covid pandemic. This led to an unprecedented increase in the supply of capital, driving asset prices higher across the board, including crypto-assets.

Consequently, this drove demand from people feeling wealthier, while at the same time the pandemic and later the invasion of Ukraine led to supply shocks in critical goods. The result has been 40-year highs in inflation in the US and many other parts of the World. Now as central banks rush to correct course, we have seen the inverse path for assets, with high correlations between crypto and traditional markets as liquidity in the financial system dries up.

Through IntoTheBlock’s capital market insights

So does this high correlation mean that crypto’s path is solely determined by macro conditions and risk appetite? Or is this a short-term anomaly as investors struggle to value crypto and its unique characteristics?

In this piece, I argue the latter, focusing on the value that Bitcoin and other crypto-assets can derive from their virtue of decentralization, a trait that will become more relevant as the world trends towards greater polarization.

Active vs Passive Utility

In crypto’s early days, Satoshi and early adopters envisioned Bitcoin as digital cash. Here Bitcoin’s value would stem from peer-to-peer transactions, they argued. The blockchain’s innovative architecture allowed anyone to validate asset holdings and transactions while incentivizing the network’s security.

As crypto grew, people began emphasizing transaction volume more, leading to one of the first indicators used to attempt to value Bitcoin: the NVT Ratio. Those that have been in crypto for a while will recognize this indicator, even if it is not mentioned nearly as much any more.

Bitcoin’s Network Value to Transactions ratio measures its market cap relative to the amount of volume its blockchain processes. Through this ratio, investors sought out to gauge Bitcoin’s valuation in relation to its active utility, that which is derived from users continuously transacting on-chain.

Using IntoTheBlock’s Bitcoin transaction volume

Here we can see how Bitcoin’s NVT has varied historically, at times potentially showing periods where it was under- or overvalued. Over time, Bitcoin’s NVT ratio has trended downwards as transaction volume growth has outpaced its price increase. This could be interpreted as Bitcoin being relatively cheap in relation to the amount of active transactions on its network.

However, as crypto has evolved, Ethereum surpassed Bitcoin in terms of transaction volume processed on its blockchain. Similarly, the amount users pay to transact in its blockchain — a proxy for its demand — is an order of magnitude larger than what they pay to use Bitcoin. Despite this, Ethereum is currently about a third of the size of Bitcoin in terms of market cap.

The main reason for this is Bitcoin’s perceived passive utility.

As the use-case of Bitcoin as digital cash failed to reach significant traction, the narrative of digital gold has gained momentum. This is due to Bitcoin’s passive utility, which stems from being a highly liquid asset not controlled by any particular entity. Through this property Bitcoin acts as an effectively neutral financial network. It is worth noting that while Ethereum also shares these traits, Bitcoin’s greater simplicity and stronger lindy effect make it a more established alternative as a sovereign asset.

Macro Conditions & the Value of Neutrality

This brings us back to the current macroeconomic conditions. We are currently seeing modern monetary theory being tested to its limit with the US having a debt-to-GDP ratio of over 120%. This means that even if the federal reserve is in a hiking cycle, interest rates will not be able to reach real positive values adjusted to inflation since the US has more debt than the value its economy produces. Thus, the economy is in a delicate position, balancing inflationary pressures and an outsized debt which cannot stand rates to go too high.

Source: St. Louis Fed

At the same time, we have been experiencing the weaponization of finance. The freezing of the Russian central bank’s assets best exemplifies this trend. While this may be a necessary punishment for the war, the fact that a nation can seize another’s reserves creates uncertainty and raises concerns about whether U.S. dollars and treasuries are risk-free.

Moreover, as oil prices increase and it becomes more difficult for Europe and Japan to forgo Russian oil, they may be forced to reassess their commitment to this decision as the winter approaches. Only now, if they choose to go against the US’s embargo of Russian oil the potential risks of freezing assets has been exposed.

This conundrum highlights the need for a neutral financial system. Pragmatically, it is not realistic to believe that Bitcoin can fully handle all of the transaction activity taking place in traditional finance. Instead, passively storing wealth is a stronger value proposition for Bitcoin in light of the current macroeconomic uncertainty and polarization. Even though this may not yet be reflected in Bitcoin’s value, it raises its validity as digital gold.

Store of Value Thesis

Bitcoin’s passive utility is brought forth by a reinforcing loop: the belief that people will be able to retain their value in a decentralized manner through Bitcoin attracts more people to do so. Put another way, Bitcoin’s decentralization is the base for it to act as a store of value. People’s ability to hold their wealth in Bitcoin with minimal risk of it being seized or censored leads many to believe that this technology is valuable and thus can retain value over time.

But what about volatility and the recent crash, you ask.

Leveraging the blockchain’s public nature we can assess whether price fluctuations affect holding behavior. In particular, the validity of Bitcoin’s store of value thesis is best represented by its long-term holders; the higher the amount of Bitcoin that is held by long-term investors, the greater the perceived value of this passive utility.

Via IntoTheBlock’s Bitcoin ownership indicators

Over time, despite decreasing their balances during bull markets, long-term investors continue to increase their holdings throughout bear markets. This shows that not only have long-term believers held despite volatility, they have taken advantage of it to double down.

Short-term volatility is inherent in a new asset which is still difficult to value. Naturally, as Bitcoin benefitted from people taking risk amid abundant capital, it is also suffering due to the subsequent backdrop. This has led to very strong correlations between Bitcoin and traditional stock indices such as the Nasdaq 100.

However, the characteristics of Bitcoin are very different to those of a technology stock. While a segment of the market has been treating these as equal, another continues to show interest that it can be much more, driven by its provably neutral financial system. In the juxtaposition of the current macroeconomic uncertainty and increased weaponization of finance, a decentralized network such as Bitcoin’s stands to gain value as the need for a sovereign alternative becomes more apparent.



Lucas Outumuro

Head of Research @IntoTheBlock. Actively researching token economics, DeFi and technology broadly. Twitter: