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A common argument against Bitcoin’s long-term viability is that it doesn’t have any real value.
This response is reasonable when you consider that Bitcoin is a technology that is so innovative, it feels unfamiliar to most people when they first encounter it.
It’s not like fiat currency, which is issued by a central bank associated with a powerful government.
It is unlike a stock, which gives the holder partial ownership of a company. It’s not like an altcoin, which is primarily used to speculate on the viability of new tech projects.
It’s not like a bond, which provides the holder with a claim on an amount of debt that will be repaid when the bond matures.
It does not generate cash flows, like rent on real estate or interest on a loan. It is not a precious metal used in industry and jewelry, like gold.
And yet, a single Bitcoin is valued in the tens of thousands of US dollars. People buy, sell and use it all over the planet. Why?
Types of value
According to monetary theory, some forms of money have intrinsic value meaning that they are useful for something besides transactions.
For example, salt, which has been used as money in the past, has intrinsic value because it can be used to season food.
Similarly, gold has intrinsic value because it has non-monetary uses in industry and jewelry.
Money that cannot be used for anything besides a medium of exchange or a store of value is deemed to have no intrinsic value.
Fiat currencies, such as US dollars, have no intrinsic value. They are useless for anything besides serving as money.
Alternatively, there is a financial concept known as fundamental value. The fundamental value of an asset is the value of the future cash flows that the asset generates, discounted to the present.
Real estate has fundamental value because it generates returns. Gold does not generate future cash flows and therefore has no fundamental value.
Where does Bitcoin fit in
From a monetary perspective, Bitcoin has no intrinsic value, and from a financial perspective, it has no fundamental value.
Bitcoin offers nothing besides utility as money. Warren Buffett attacked it for this reason, calling Bitcoin, “rat poison squared.”
However, many of the smartest investors from the world of legacy finance fail to grasp that Bitcoin is extremely valuable as money precisely because it is so good at being money and because that is its only job.
If Bitcoin has no intrinsic or…
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