The intrinsic value of bitcoin has been discussed heavily in the crypto space for several days now after a remark by the governor of the Bank of England (BoE) suggested that the flagship crypto might have no intrinsic value.
Andrew Bailey, BoE Governor, commented on bitcoin’s intrinsic value in a question and answer session with members of the public early this week. He was quoted by Reuters as saying:
“I have to be honest, it is hard to see that bitcoin has what we tend to call intrinsic value. It may have extrinsic value in the sense that people want it.”
He also said that people who use bitcoin for payments make him quite nervous since the value of cryptocurrency is still uncertain. After those remarks by Bailey, the crypto community started discussing bitcoin’s intrinsic value in some detail.
The CEO of Nasdaq-listed company Microstrategy, Michael Saylor, also had his say in this matter. Microstrategy recently purchased $425 million worth of bitcoin for its treasury reserve. Saylor tweeted:
“Bitcoin is the first digital monetary system capable of storing all the money in the world for every individual, corporation, and government in a fair & equitable manner, without losing any of it. If that’s not intrinsically valuable, what is?”
Nikolaos Panigirtzoglou, JPMorgan’s strategists, wrote in a note on October 13 about bitcoin’s intrinsic value approaching its market price.
“Bitcoin faces a ‘modest headwind’ in the short term based on an analysis of bets in the futures market and an estimate of the cryptocurrency’s intrinsic value.”
Bloomberg reported the strategists explaining and added that they said the price remains almost 13% higher than an estimate of intrinsic value.
Twitter Crypto Community Awakened
Several people on Twitter were quick to point out that bitcoin may have no definite intrinsic value. But, fiat currencies also do not have intrinsic value. The Federal Reserve Bank of St. Louis wrote a report in 2018 saying:
“Bitcoin is not the only currency that has no intrinsic value. State monopoly currencies, such as the U.S. dollar, the euro, and the Swiss franc, have no intrinsic value either. They are fiat currencies created by government decree. The history of state monopoly currencies is a history of wild price swings and failures. This is why decentralized cryptocurrencies are a welcome addition to the existing currency system.”
Shapeshift CEO Erik Voorhees said that there is no such thing as intrinsic value. He explained:
“Value is always subjective, in the eyes of the valuer … Gold, bitcoin, fiat, rice: none have ‘intrinsic value.’”
Another Twitter user, Bob McElrath, also agrees that nothing has intrinsic value since the name ‘value’ is human sentiment. Value changes from time to time and with circumstances. Anybody who tries to convince you otherwise in most cases wants to sell something to you for their gain. McElrath added:
“Despite not having ‘intrinsic’ value, bitcoin has a sophisticated, market-based way to determine its value, not only on the demand side but on the supply side as well. Of course, this statement is true for any commodity.”
George Selgin, Cato’s Center for Monetary and Financial Alternatives director, opined:
“Of course no goods have ‘intrinsic’ value. Some (like any fiat money) also lack ‘non-monetary use value’ … the Bank of England’s observation that bitcoin lacks intrinsic value is an instance of the pot calling the kettle black.”
This debate can go on and on but that does not deter interested investors from diving into the bitcoin space. More institutional investors are joining the market which many proponents believe is a positive sign for the future of bitcoin and cryptos in general.