update 17 October 2021

Bitcoin has No Intrinsic Value But Seems Its Scarcity is the True Backing of its Price

Bitcoin’s excessive price volatility has elicited numerous discussions about whether the digital asset has intrinsic value.

Since its launch in early 2010, Bitcoin has displayed a wild price ride. In April 2021, it hit an all-time high price of around $64 000. Furthermore, 2017 was a historic year in Bitcoin’s price charts. Then, the coin started trading at $1,000 and ended at $19,783.06, representing a 1,824% increase in value. 

Bitcoin has historically risen in value, with experts predicting that the price will continue to grow in the years to come. But what drives Bitcoin’s value? Unfortunately, most people fail to understand where Bitcoin derives its value or what drives its price growth.

Bitcoin skeptics argue that the digital currency lacks intrinsic value, with hoarding and speculation being the major economic forces driving its price growth. Bitcoin proponents, on the other hand, argue that Bitcoin derives its value from scarcity and utility. This piece examines whether Bitcoin has an intrinsic value as well as the proper backing of its price.

What is Intrinsic Value?

An intrinsic value of an asset refers to the internal value possessed by the support. A purchase or commodity with value in itself, i.e., inherent value, does not require an additional product to attain its value. For instance, the intrinsic value of sugar is sweetness. A product has intrinsic value if people are willing to pay the price to obtain it.

For a commodity to have intrinsic value, it needs to be exchanged with another product for a similar deal. Additionally, it needs to store value to be part of trades in the future. If the commodity has a scarce supply, its intrinsic value should increase over time in line with demand.

Gold, silver, and other precious metals have an intrinsic value, just like any other product. However, the inherent value of such metals is mainly dependent on their scarcity, investments that go into the mines, and channels of procurements.

Unlike commodities and precious metals, fiat currencies lack an intrinsic value. Instead, they derive their value from the state’s backing and the people’s trust. Thus, the value of fiat currencies is determined by the users’ demand and supply.

Bitcoin Has no Intrinsic Value. Here is Why?

In March 2020, the Bank of England’s governor statement that Bitcoin and other cryptocurrencies lacked intrinsic value elicited mixed reactions among the crypto community. Andrew Bailey made the statement in a press conference where he was asked about the future of cryptocurrency. While most Bitcoin advocates quickly rubbished Bailey’s comments, it’s a fact that Bitcoin lacks intrinsic value but has extrinsic value.

Bitcoin has no intrinsic value since it can neither function as a medium of exchange nor a weight store thanks to its intense volatility. As a result, bitcoin skeptics argue that the coin lacks a real-world use case, like gold and other commodities that have intrinsic value. This argument is relatively correct, at least as of now.

While some enterprises accept Bitcoin as a means of payment, the coin is unreliable to be used as a means of exchange owing to enormous price volatility. Bitcoin’s intense price volatility is primarily attributed to its inherent deflationary nature, resulting in hoarding and intense speculation.

However, once all the 21 million bitcoins have been mined, the coin is predicted to be much more stable than it is currently. This is particularly true considering that Bitcoin’s volatility has been decreasing steadily from the mining of the genesis block towards the last block, which is estimated to be mined in 2140.

Bitcoin vs. Real-World Assets

Bitcoin has no intrinsic value because it lacks a real-world use case and store of value. Commodities have an intrinsic value when they can use them to store value and have real-world use cases. For instance, many believe gold to have inherent value as it has several real-life applications in the electronics and medical (dentistry) industries.

It can also turn gold into expensive jewelry, coins, and gold bars. However, like fiat currency, gold obtains vast of its intrinsic value in the people’s perception that it’s valuable. So, it doesn’t get and much of its real-world use case. Only 15% of all gold available is part of industrial applications.

In essence, Bitcoin lacks intrinsic value as it cannot be efficiently used as a means of exchange owing to its volatile nature. What’s more, it cannot turn into a product that offers utility, i.e., it lacks a reliable real-world application.

Where Then Does Bitcoin Obtain Its Value

Bitcoin lacking an intrinsic value doesn’t mean that the coin is not valuable. If it was not practical, how then would 1 BTC be worth $47 700 at the time of writing? Bitcoin’s value is in a form no other commodity is capable of offering. After all, the king coin is essentially a digital product that offers access to a decentralized, automated ledger financial service.

Bitcoin has value, and it’s possible to approximate the potential value of one bitcoin using two primary theories: equating it to gold and Metcalfe’s law which states that the value of a network is proportional to the square of the total number of users on the web.

When equated to gold, one bitcoin could be worth $ 357,000. This figure comes from calculating the total value of all gold ever mined $7.5 trillion and dividing the number by 21 million. The latter is the total number of Bitcoin that will ever exist.

Bitcoin obtains its value from scarcity. The cryptocurrency has a set cap of 21 million bitcoins, meaning that supply decreases with supply increases. Thus, Bitcoin’s finite supply makes it highly valuable, even more than gold and other commodities, which have an infinite supply. Indeed, scarcity is the proper backing of Bitcoin’s price and determines its economic value.

Closing Words

Bitcoin has no intrinsic value mainly because it doesn’t function as a store of value or a medium of exchange. However, this doesn’t mean that the coin is not valuable. On the contrary, Bitcoin is currently the most valuable commodity globally and more valuable than gold.

price change

Many perceive Bitcoin’s actual value as deriving from scarcity. Unlike gold, the coin has a capped supply of 21 million coins, which doesn’t have a fixed supply. Bitcoin’s fixed supply makes it highly valuable, more than any other commodity or digital asset.

More posts

Top 7 Coins on Binance Smart Chain (BSC) to Watch in 2022

Binance Smart Chain continues its streak of unprecedented growth. Whether it’s token swaps, NFTs, or decentralized markets, BSC supports more than one option to earn significant yield and make the crypto landscape more exciting. Binance Smart Chain is a one-of-a-kind new blockchain with a dedicated environment that supports decentralized and high-performing applications. The cross-chain compatibility of BSC is one of its hallmark aspects. Also, it allows users to reap the benefits of Binance Chain and Binance Smart Chain. But unlike…

Fed Joins BIS Innovation Hub For Research On CBDCs

While Jerome Powell remains cautious of the stablecoin sector, he has big plans for utilizing cryptocurrency technology for American benefit. In a recent statement, he announced a related partnership between the Federal Reserve and the Bank of International Settlements. Together, the organizations will analyze how Central Bank Digital Currencies (CBDCs) can improve the current global financial system. Powell’s Plans For CBDCs The chairman announced the partnership during his opening remarks for the “Introducing the New York Innovation Center Event,” earlier…

Binance Provides “The Inside Story” On DOGE Withdrawal Issues

Following weeks of technical difficulties, Binance has resolved an issue pertaining to Dogecoin withdrawals from their exchange. Today, the company released a statement explaining why the issue arose in the first place, and what it took to resolve it. This comes following a frustrated exchange between Binance and Tesla’s CEOs while the problem was still being worked out. The Inside Story The explanation came in a statement from both Binance and Dogecoin Core maintainers, posted through Binance Blog. What began…

Jack Dorsey Steps Down as Twitter CEO

After over 15 years since founding the company, billionaire Bitcoiner Jack Dorsey has announced his resignation as CEO of Twitter. As of today, the social media giant is led by former Chief Technology Officer Parag Agrawal. Meanwhile, Dorsey will serve as a member of the board until about May, before leaving Twitter entirely. Interestingly, his reasons for leaving are exactly what one would expect to hear from a Bitcoin maximalist. Freeing Twitter From its Founder’s Influence Earlier this morning, word…

Rocky Inu (ROCKY) Officially Launches On Binance Smart Chain

Rocky Inu (ROCKY) is the latest crypto meme project to hit the Binance Smart Chain (BSC) after officially launching on November 28, 2021. The project’s token, which is based on a cute Rocky Inu puppy, crushed BSC during liftoff and set its trajectory to rocket all the way to the moon. Team Rocky seeks to build the healthiest meme coin on BSC that rewards holders and grows the community with charitable incentives. The Rocky Inu project capitalizes on the craze…

Metaverse Frenzy Grips Chinese Investors, Despite Warnings From State Media

Small and medium Chinese investors are "licking the blood on the edge of a knife," when investing in the Metaverse. At least that is what a report in a Chinese state-owned paper claims. Since Mark Zuckerberg announced that Facebook will be rebranding into Meta Platforms, companies have been racing to claim the space. The Metaverse will be a digital space where users can interact with each other and their virtual environment. The tech could revolutionize the way we work, travel…

Bitcoin Bounces Back to $58,000 – Showing Signs of Recovery

Bitcoin started a week with a bang, recovering from last week's selloff, as markets show clear signs of recovery. The price of the largest crypto soared 6% on Monday, reaching a high of $58,000. It has since settled slightly below that level, at $57,750. The jump made up for the last week's dip, prompted by the new, potentially vaccine-resistant COVID variant. Last Friday, Bitcoin dropped more than 9%, trading as low as $53,549 at one point. The sellout was due…

Tripedia Review – Reshaping the Travel Industry through Blockchain and AI

Tripedia aims to leverage blockchain technology to modernize and reduce the centralization of the tourism industry. Blockchain is consistently proving its use and benefits in increasingly more industries. And, rightfully so, many sectors could prosper should they implement this technology. It is the case of the tourism industry, which is struggling with the monopoly of Online Travel Agencies (OTAs). The latter relies on colossal data traffic to take the largest market share and prevent smaller companies from surviving. Through blockchain…

WMA: Bitcoin Dips Closer to $50,000 amid Market Bloodbath

Get the weekly summary of crypto market analysis, news, and forecasts! This Week’s Summary The Crypto Market ends the week at a total market capitalization of $2,435 trillion. Bitcoin is down by almost 9% after a horrible week. Ethereum dropped by almost 7% over the past seven days. XRP dropped by almost 15% to trade again below $1. Almost all altcoins have traded in the red for most of the week. The DeFi sector lost nearly $1 billion in Total…

DYP Launches V2 Staking, Buyback, and Farming Pools on Binance Smart Chain

DeFi Yield Protocol (DYP) – a yield farming aggregator platform – recently announced its new pools for staking, buyback, and farming on Binance Smart Chain (BSC). Each pool is offering remarkably high APRs of 50%, 100%, and up to 1150% respectively.  These pools arrive at a critical moment for DYP, which analysts predict will surge by orders of magnitude in the weeks to come.  DYP’s New Pools According to a company statement, the Buyback pool will allow users to deposit…