Bitcoin Has No Intrinsic Value?
The most frequent question in Bitcoin
Bitcoiners have been hearing this ‘argument’ from “normies” and experts alike for years, and although we typically answer it, the question still persists to this day. There are several such questions that we fail to answer clearly.
Enter Chetan’s #Bitcoin Normie Playbook - A re-education camp for Normies and a Bible for Bitcoiners to answer popular but silly Bitcoin criticisms.
Today we answer Normie Question No.4 of the playbook - “Bitcoin has no intrinsic value”
Firstly, what is intrinsic value?
The answer is. Nothing. Intrinsic value is literally nothing; a meaningless phrase popularised by Benjamin Graham in the 1930's and 1940's which simply alluded to a rational estimate of an assets worth based on its earnings and cash flow.
Value itself is not intrinsic. Value is subjective. This is a core and fundamental concept of economics.
All value is subjective and a function of human preference. It changes from person to person as their preferences change, but it also changes based on time, place and circumstance.
A bottle of wine might be very valuable in New York city and hold no value on the streets of Saudi Arabia.
Ice Cream is valuable on a hot summer's day, but not in winter, it’s more after dinner than it is after breakfast. And its value is different for a person who has a sweet truth versus someone who doesn't.
Does a chair have intrinsic value? No, it doesn't. It might have utility because you can sit on it, but the utility of sitting is not equally valuable to everyone at all times.
If I add a chair to a room that has 50 chairs and only 10 people, the chair has almost no incremental value.
If I add the same chair to the nearby room with 50 people and only 10 chairs, that same chair has a lot of value. But even then the chair will be more valuable to a person who is tired and less valuable to a person who is not.
Drinking water has intrinsic utility of satisfying thirst, but it does not have intrinsic value. A bottle of water in my house has almost no value if I have a water connection, and yet the same bottle of water in the Sahara would be extremely valuable.
Utility might be intrinsic, but value is inherently subjective. Which is why value is Ordinal and not Cardinal. Value can be ranked (Ordinal) but not measured (Cardinal). We can say an iPhone is more valuable than an Android phone, but we can’t say by how much since value is subjective.
The value of anything is what the other person is willing to pay for it. That applies to chairs, to ice cream, to water, to Gold, to iPhone, to currencies, and yes, indeed, to Bitcoin.
Bitcoin’s value is subjective like everything else. To some people, the ability to remit money back to their home country in a fast, cheap, and private way is extremely valuable, to others it is not.
To people living in high-inflation countries, being able to store their wealth is literally a prerequisite for survival; for others living in low-inflation countries, it is not.
To some people, escaping a war-torn country or a brutal dictatorship with their savings intact such that they can't be stolen or taken by force is extremely valuable; to others living in a democracy, it is not.
When Benjamin Graham spoke of Intrinsic value in his book 'Securities Analysis' in 1934 and in 'The Intelligent Investor' in 1947 he was simply asserting that some stocks whose cash flow and earnings are consistent, should be easier to value and there should be a set way to value it. That does not mean that the stock has intrinsic value or objective value. It simply means that the range of subjectivity of the value of certain stocks is narrower than others. Even the formula Benjamin Graham used for intrinsic value requires you to input your subjective assessment of the company's future earnings.
People are very uncomfortable with the idea that Bitcoin’s value is whatever someone else is willing to pay for it, and the market price is a rough dynamic ever-changing aggregate of all value decisions represented through the buying and selling of Bitcoin. This is the same for every asset in the world with no exceptions.
Bitcoin can have intrinsic properties, but it cannot have intrinsic value, because value is not intrinsic.
Here are Bitcoin’s intrinsic 'properties':
Bitcoin is a global, permissionless, and liquid asset.
Bitcoin is scarce, portable, transportable, divisible, fungible
Bitcoin is verifiable and auditable
Bitcoin has high tax leverage and infinite value density
Bitcoin eliminates custody risk and counter-party risk
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