Bitcoin has no intrinsic value?

The valuation method of Bitcoin is the same as that of stocks, gold, and real estate. They all have no intrinsic value.

Written by:

The price of Bitcoin has dropped about 25% from its historical high of 109,000 dollars, prompting critics to once again launch full-scale attacks. As punctual as a clock.

A common criticism of Bitcoin is its lack of intrinsic value. This argument is often confidently and somewhat arrogantly proclaimed by Bitcoin skeptics, as if simply declaring it a fact could completely resolve the debate about the importance of Bitcoin. They assert that without intrinsic value, Bitcoin is naturally worthless—end of discussion!

Here is a recent example:

Those who criticize Bitcoin as "Dividend Bros" annoy me more than others because they prefer to have a little less money for income.

Anyway, I think it would be interesting to directly respond to this criticism, as it is quite common in our community.

What is intrinsic value?

According to the Oxford Dictionary, the word "intrinsic" means "belonging naturally; essential." Therefore, the term "intrinsic value" must refer to the value of an asset being, to some extent, a part of its inherent attributes.

Investopedia defines intrinsic value as:

"...the measurement of asset value derived from objective calculations or complex financial models, rather than using the current market trading price of the asset."

This definition implies that a specific asset possesses some inherent value that can be objectively discovered in the real world, just as determining that water is composed of two parts hydrogen and one part oxygen. Similarly, the value of an asset is viewed as an attribute of that asset—something definitional.

Further reading the Investopedia page will immediately reveal a contradiction.

There is no unified standard for calculating the intrinsic value of a company or stock. Financial analysts attempt to measure the actual financial performance of an asset through fundamental and technical analysis to determine its intrinsic value.

Wait? Didn't you say that intrinsic value is "objective"? But now you're saying that "there is no unified standard"? What's going on?

One method commonly used by financial analysts and investors to determine the intrinsic value of an asset is Discounted Cash Flow ( DCF ) analysis. Essentially, they attempt to calculate the current value of an asset based on the cash flows it generates and the price at which they can buy it in the market. While this method is "effective" at a given point in time, it's difficult to say that any number you calculate is inherent to the asset you are evaluating.

The mere fact that the market trades this asset at different prices initially proves that the DCF valuation is not inherent to the asset itself.

Some assets do not generate cash flow, yet the market still values them. Why is that?

Gold enthusiasts often loudly proclaim that Bitcoin lacks intrinsic value. Of course, gold is used in commodities such as jewelry and electronics, while Bitcoin has no real-world utility at all. However, the market value of gold far exceeds its industrial use value.

Real estate investors believe that the assets they favor have intrinsic value because they can serve as a place for residence or business. People need a roof over their heads, right? However, the exact same house or building in New York City or by the beach will sell for much more than in some cul-de-sac community in Oklahoma.

When people talk about "intrinsic value," they really mean "utility." Stocks are linked to businesses that generate cash flow, providing the utility of a stream of income. Gold provides the utility of wearing precious jewelry and performing calculations. Real estate provides people with housing or vacation spots.

Although all of this is true, everyone's view on the value of assets and their utility is different.

All value is subjective

Everything is in our minds.

The value of any object, service, or asset is not inherent in the thing itself, but is determined by individual perceptions, preferences, and needs. As the Austrian economist Carl Menger said:

"Value is the judgment made by frugal people about the importance of the items they possess for maintaining their lives and well-being. Therefore, value does not exist outside of human consciousness."

Value does not exist in the physical or tangible attributes of items—such as the gold in a coin or the silicon in a computer—but rather in the hearts of people. For example, for a person dying of thirst in the desert, a cup of water may be priceless, but for someone who can easily access clean water, it is worth almost nothing. The intrinsic properties of water have not changed, but its value varies greatly depending on the context and individual needs. Similarly, a painting by a famous artist may sell for millions of dollars at auction, not because of the cost of the canvas or paint, but because people perceive it as beautiful, historically significant, or a symbol of status.

This does not mean that value is arbitrary or meaningless. It is closely related to human psychology, culture, and economic behavior. Individuals assign importance based on utility, scarcity, cultural significance, or emotional attachment. This importance translates into our value judgments of specific things. Of course, this also applies to gold, real estate, and stocks, just like the thirst for water when thirsty or the artworks in a gallery.

When we think about the value of financial assets, everything is speculative. Whether it's stocks, real estate, gold, or Bitcoin, the value of each asset primarily derives from individuals' beliefs about its future value. This belief or perception of future value shapes today's demand, driving prices up or down based on collective expectations. Since these expectations can change due to economic news, political events, technological innovations, and human psychology, the value of financial assets is essentially speculative and fluid.

Bitcoin Valuation

I hope it is clear by now:

• Nothing has "intrinsic value," at least not in the way most people use the term.
• Individuals assess assets differently and subjectively based on their own opinions and priorities.
• Buying, selling, or holding any asset is speculation on the future.

The valuation of Bitcoin is similar to that of stocks, gold, and real estate. None of them have any intrinsic value. People evaluate these assets based on the utility and returns they expect to gain from owning them to determine how much they are worth to themselves.

As time goes by, the utility provided by Bitcoin becomes clearer to more and more people, and they choose to buy and hold it.

• A fixed supply that cannot be altered by governments, banks, or other powerful interest groups means that your share will not be devalued.
• Its digital characteristics and self-settling capability mean it can be transferred to any place in the world at relatively low cost at any time.
• Holding the private key of Bitcoin means you have unilateral, sovereign control over your wealth, and there is no counterparty risk.

Shifting the discussion towards utility rather than intrinsic value immediately reveals the contradictions of those critics who rely on this argument against Bitcoin. If value depends on the utility an asset provides to individuals, and this utility is evident, then logically, Bitcoin holds considerable value for many. This is exactly what we see in the market.

Bitcoin is now valued at trillions of dollars in the market, and that value will increase by trillions as more people discover its utility for themselves.

As people's understanding of what Bitcoin is, how it works, and the utility it brings continues to evolve, the price of Bitcoin will continue to fluctuate. However, there is nothing "intrinsic" about this process for Bitcoin or any other asset.