Bitcoin's Intrinsic Value: Does It Even Exist?

Why is Bitcoin valuable? Should it even be valuable? How do we measure the value of something, really? These questions have seen regular occurrence all over the internet and now that Bitcoin has found some stability at $5000 in April, the question is being asked yet again.

The conversation almost always turns to the intrinsic value of Bitcoin. Intrinsic means the inherent value of a good. A load of bread can be eaten, so it has intrinsic value. Gold looks nice, can be made into jewelry and coins, stores well amid a host of other uses in electronics so it also has an intrinsic value. Many top economists and investors believe that Bitcoin has no intrinsic value.

Howard Marks, a man who has been entrusted with investing $90 billion for Oaktree Capital, thinks that cryptocurrencies are “nothing but an unfounded fad”. Legendary investor Warren Buffet thinks even less of Bitcoin than Howard does. He doesn't believe that Bitcoin has any value at all. He calls them a delusion.

The Intrinsic Value Of Fiat Versus Bitcoin

The idea of intrinsic value has been debated a lot of in academic circles. The actual concept was introduced with the “Labour Theory of Value”. They argued that the value of a product was equal to the amount of work put into it. The theory was quickly dismissed as it was obvious to other economists that working hard on a product rarely had any impact on its value.

Rather, the Subjective Theory of Value was intended as a replacement. This theory is based on both speculative and subjective elements that are applied to the analysis of the object being valued. Labour is just one of the elements, alongside the resources needed to create the object and its utility. Then there are elements such as the demand for the product in the market and relative values that individuals place on objects according to their circumstances.

A loaf of bread to a well-fed person has a lower value than to a person dying of starvation, after all. Bitcoin might look like bread to someone who's well fed, what with the complexities surrounding it and it being a veritable hodge-podge of different 90s technologies. Bitcoin really is something intangible with regards to the physical realm. We cannot touch Bitcoin and we cannot consume it.

That said, it is the same for fiat currency. While one may be able to eat money in and of itself, it's not exactly a good supply of calories (and in some instances, eating money can literally kill you). Yet we give fiat currency a value even though we are at a stage in human evolution where we pay many of our day-to-day expenses with “money in the bank”, which is just as intangible as Bitcoin. We can pay for a house with money we don't have but need to pay back.

Bitcoin Can Be Evaluated From Multiple Perspectives

Since fiat currency, at this point in time, is just a promissory note issued by the government that backs it… how do we compare its intrinsic value to that of Bitcoin? Bitcoin has been valued relative to the dollar for the longest time, as ti was the easiest way to quantify this value.

If we take the “labor” needed to “make” Bitcoin, we could use that. The estimated price to mine a single Bitcoin is estimated to be around $4300. So Bitcoin is hovering just above it's “intrinsic” price.

However, if we were to look at extenuating circumstances, things become slightly different. Bitcoin provides the same features of any good money (it can be easily subdivided, it is secure, it is fungible and extremely portable among many other things) so it could base some of its value on being better than current implementations of fiat currency.

There are many organizations who would like to use Bitcoin as the backbone for world commerce. A currency that is truly transferred from one entity to another in mere moments is a dream of cross-border remittance companies. It is seen by many as the perfect disruptor to an economy that is increasingly slowed down by the constraints that old technology and traditional methods of thought have imposed on it time and again.

This potential is not unique to Bitcoin. It is unique to blockchain technology and that is growing at an ever quicker pace. However, Bitcoin, which is currently the king of cryptocurrencies can be the first to break through and bring about the change the market has been seeking for so long… and that is exactly why its value is, to some, incalculable.