The intrinsic value of bitcoin

By Galaxy02 | Galaxy | 26 Jan 2021

There are lots of people believe in the value of bitcoin, so do I. I believe bitcoin has long-term value, but what's the intrinsic value of bitcoin? There are some "bitcoin enthusiast" blindly believe in bitcoin, for example, they keep saying bitcoin will worth $1M or even $1B in the further, mainly based on the following reasons:

  1. digital gold: bitcoin has fixed 21M supply, so it is the best way to fight inflation.

  2. blockchain revolution: blockchain is an emerging technology, so bitcoin price will benefit from the development of blockchain technology.

  3. price history: they always talked about if you buy $1 bitcoin several years ago, you will become millionaires now. If these patterns repeats, bitcoin will worth millions dollars several years later, so what are you waiting for? anyone who bearish bitcoin in the past are regret now.

I believe the value of bitcoin, but I don't agree with those statements. From my point of view, those features are not the intrinsic value of bitcoin.

  1. fixed supply does not means value: fixed supply is a good feature but a crypto cannot generate value just because its supply is fixed.

  2. blockchain is not equal to bitcoin: Bitcoin is the first cryptocurrency and also the first application of blockchain technology, with the development of blockchain technology, more and more people get to known about bitcoin (of course, many people know blockchain through bitcoin), thus, bitcoin do have a unique place in the blockchain world. But please remember, bitcoin is closely related to blockchain, but blockchain is not all about bitcoin

  3. do not just focus on the price, focus on the market cap: bitcoin price did increased a lot in the past few years (I also regret not bought bitcoin before 2017), but that does not mean the price of bitcoin will continue to increase that much in the future. We should focus on market cap rather than price. With 21M supplies, if bitcoin price goes to $1M, then the total market cap of bitcoin is over 20 trillion dollars, and what does that mean? for comparison, the top 500 U.S. companies market cap is around 33 trillion dollars and the total U.S. equity market cap is around 50 trillion dollars, by the way, the global gold market cap is around 10 trillion dollars. Do you still think bitcoin price could easily goes to $1M? or even $1B?

So what's the intrinsic value of bitcoin? in my opinion, is consensus. Given the constrain of the network performance, bitcoin itself can't generate much commercial value (7 tps is too slow for large commercial applications), but bitcoin has its unique competitiveness: the consensus. Why? because of the first mover advantage: most people know cryptos or blockchain through bitcoin, and thus it forms a strong consensus (strongest among all cryptos). So I do agree that bitcoin will act like "digital gold", in other words, in the future, the biggest value of bitcoin will not shows in commercial usage, but in "value store" function, just like gold.

I have to clarify two things here:

  1. some people may claim that bitcoin will replace fiat money in the future, which means bitcoin will be the only "general currency"(like euro to europe) while no fiat money exist in the future, and thus bitcoin price will soar to the sky. I think that is totally an illusion and will not become true. Firstly, the performance of bitcoin network cannot supports such high transactions efficiently: as the payment activities in the bitcoin blockchain increasing, the network will become slower and the transaction fees will increase a lot. In other words, bitcoin' network is unfriendly to large amount transaction, and bitcoin is far from an ideal payment currency. Actually, banks can adopt blockchain technology to improve the current payment system. Secondly, Never forgot regulations! even if bitcoin's network could support large amount transactions, it still cannot be the "general currency" of the world because of the regulations. It is not because governments are bad, but because the core financial system must be centralised, otherwise, the government cannot stimulates economy when facing crisis. Decentralised economy will not fully replace centralised economy, they will coexist in the future.

  2. Crypto market is full of opportunities, and different crypto project has different value. Bitcoin is not suitable for large commercial applications, but that's not means no crypto projects are suitable for that

Blockchain is an revolutionary technology, so as the token economies. But we should not blindly bullish bitcoin, rather, we should make our own analysis and have our own investment strategy.



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I'm a finance guy and interest in market analysis. Wish to share my opinions through this site.


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