Do Bitcoin/Cryptos Have Intrinsic Value?
I've been a little confused with the second rise of crypto. I thought with the crash that people had come to the conclusion that cryptocurrencies hold no real value and are just speculative assets. Now, JP Morgan came out with a report stating that cryptos do in fact have intrinsic value.
Bloomberg notes,
The best-known cryptocurrency has surged beyond its “intrinsic value,” mirroring a similar move in 2017 which preceded a slump, wrote strategists including Nikolaos Panigirtzoglou in a note Friday. They came to this conclusion by treating Bitcoin as a commodity and calculating its “cost of production” using inputs such as estimated computational power, electricity expense and hardware energy efficiency.“Defining an intrinsic or fair value for any cryptocurrency is clearly challenging,” the strategists wrote as a caveat. “Indeed, views range from some researchers arguing that it has no fundamental value, to others estimating fair values well in excess of current prices.”
Personally, I don't think it has intrinsic value. It's like a currency in the fact that it stores value, but it doesn't have an economy to back it.
For people who actually know more than I do, do you think Bitcoin actually has value? If so, do you think it is undervalued or overvalued?
I personally agree, and I feel that they don't have value and they're just a speculative asset. I would also be curious to know why the sudden rise in price. I don't think it has to do with the fact that a bank came out saying that they suddenly do have value. Either I'm the idiot and people are seeing something I don't or there's just a lot of idiots out their who think they can make a quick buck.
First off, do you know about Web 1.0-4.0? If not, look it up. In some cases, crypto have the power to become the underlying infrastructure for a new internet. Some of them are technically strong projects with an associated coin same as a public co's stock.
Truth told, they're so speculative that it's hard to tell. In the same vein, bet on the right underlying infrastructure and you can make a ton of money if any bit of the paradigm shift is real.
To answer your question, let me put it to you this way:
Gold is soft and doesn't rust like other metals. Diamond is harder than gold and doesn't rust either. Diamond can cut through gold, but people value gold more than they value diamonds.
Visa processes 1700 transactions per second. Bitcoin processes 7.
Gold is valuable because people said it was. Bitcoin is valuable in the same way gold is valuable - because people said it was. It doesn't have the best security, doesn't transact incredibly quick.
But if half the world thinks that bitcoin is valuable and trades at $10k, I'm happy I bought in as an alternative back at $2.
Other than oxygen and water, there's nothing in this world that's inherently valuable.
Interesting perspective. I definitely will have to look into it more. I hadn't really made the connection between coin offerings and the actual blockchain. Any resources you recommend for me to look into?
https://www.theblockcrypto.com/?gclid=Cj0KCQjwrJ7nBRD5ARIsAATMxsudLZMht…
Gold and Diamonds have industrial value. Food has value. Bitcoin has no intrinsic value, bitcoin doesn't even exist physically, and has no other use than as a means of trade.
Physical gold can literally be used for thousands of purposes, which is why its valuable as an investment. Diamonds are for luxury and the supply is artificially controlled by DeBeers. Scientists can make diamonds in a laboratory setting with an identical chemical composition as natural mined diamonds. In other words, no one would be able to tell the difference. Of course, due to "regulations" (read politics), lab diamonds have to be noted as "synthetic".
Back to the topic at hand, Bitcoin is a sham. People argue that fiat currency isn't backed by anything, but it is; its backed by the issuing government's credibility and stability. The U.S. has the very best military in the world and a tax base that generates trillions of dollars annually. The U.S. federal government also owns a lot of assets such as land to the West (most of Nevada is owned by the U.S. government). A lot of that land has rich oil reserves and timber, meaning there's more value than just the real estate.
It seems like Bitcoin depositories get cyber robbed every month or so. We don't know anything about the creator of Bitcoin. Unlike fiat currency, what is Bitcoin backed by? Supply and demand? That's one reason we got off the gold standard. And besides Bitcoin, there are numerous other competitors, which is laughable because we're talking about currency here. No one questions the U.S. dollar and other major global currencies. Even those who question fiat will gladly accept it. As for the recent run up in Bitcoin value, its no different than a dead cat bounce. During the Great Depression, the stock market would have random rallies, but would wipe out all gains and then sum in subsequent sessions.
While I don't see ANY value in Bitcoin, blockchain technology is a different story. Blockchain can be applied to so many industries for higher integrity and efficiency, which is why its such as big deal.
There is a value to the equipment used and the power necessary to mine bitcoins.
Supercomplex single function ASIC computers (think of a server room) are combined to generate enough hashing power or "brainpower" to solve a certain equation before any other group in the world. If the equation is right you receive the block reward and that solution gets encoded into the blockchain.
IIRC it cost roughly $3500 in 2018 to mine a bitcoin on average in KwH.
JPM has a stake in the outcome so they're always going to create a narrative that aligns with their interest.
When the silk road was running it was much more interesting - it was the first, and probably last, entire marketplace all based on anonymous btc transactions. Anonymity is what makes btc transactions interesting. Govt/regulation will ruin it.
Doesn't generate cash flow, there's no business model behind it, it's not even a physical thing. New coins coming and going, no barrier to entry. It's madness.
You might be able to make a quick buck though. It's all speculation. I wouldn't touch it myself.
No, it does not have intrinsic value. How can you tell if it has intrinsic value?
Because the asset or underlying asset must generate / have a reasonable basis for generating cash flows.
Bonds - Provides CFs through interest income Stocks - Underlying asset (the business) generates cash flows. In the event that you deal with a company that doesn't generate cash flows (tech companies like NFLX), they have the expectation of one day becoming CF positive Real Estate - Speaks for itself
Bitcoin / Ethereum do not generates cash flows no does any underlying mechanism do so. As such, how can you effectively value it? By assuming there is a greater fool willing to pay more; that's how you know it is a speculation vs. investment
Who pays you when you sell a stock?
Do you think it really has intrinsic value, or just the quasi-value someone else puts on it?
What do you mean who pays you when you sell? The buyer pays.
Yes, there is ALWAYS an intrinsic value to a stock, even when it's 0. The value someone puts on it is the speculative component, which matters a lot in the short run, but over a 5yr period, the fundamental earrings power of the business will determine the bulk of the return. Predicting the speculative portion is a highly risky game, but over a long time horizon, equity prices will revert to their intrinsic value.
Crypto is a very real, necessary, and critical asset for everyone's bugout bag.
Cryptos trade like options on the adoption of the underlying tech.
I think it's important to distinguish between the value of the underlying technology (blockchain) and the actual crypto-coins themselves. I think anyone with a brain can see the beauty of blockchain technology (removing single 3rd parties and outsourcing trust to the collective group that is incentivized to verify correctly)...that absolutely has value. The real question is how this technology will be applied and how long will that take to actually be used at scale (replacing traditional methods) in any real world applications.
There are some really interesting applications of this technology and I'm sure that blockchain will manifest itself in many areas of our day to day lives...I just have no clue who those winners will be and/or if the right way to "invest" in these options is to purchase random coins.
For full disclosure, I do hold some bitcoin + other cryptos because although they don't hold intrinsic value in the pure "asset" type of way, they do hold value in their potential applications (and the potential returns are enormous if any of them are successful).
My guess is we're ~10-20+yrs away :-)
I mean I think people are getting a bit uptight about the ‘intrinsic value’ piece.
Let’s take a step back shall we?
Commodities; valuable for industrial purposes, but the pricing itself is determined by supply and demand, which ultimately is a function of actual real end-users + speculators (who add liquidity). Does an Oil-well implicitly produce cash-flow? Not unless you have a contract that says I will exchange X amount of currency for it (and that contract is driven either by a speculator, or someone in supply chain who needs that product).
Fixed-Income; valuable because it says give me 100 of a currency and i will pay you x + 100 back at the end of a period of time with a certain probability (i.e. credit risk etc etc). Again this is priced by supply and demand depending on end-users (x amount of people want the interest rate of 5%, where they can only get 4% otherwise, so that 100 is more / less valuable at that SPECIFIC point of time, and even then it will have a knock-on effect if the instrument pays out cash-flows in the interim, as reinvesting those will have an overall impact on the ‘value’).
Equities; valuable because ultimately it will pay you a dividend, or repurchase your shares with earnings. Traded in a way that honestly is not really tied in with it’s ‘intrinsic value’ because no one can predict the future (i.e. the perpetual G on dividends, earnings etc, cannot be predicted to such an extent that you have a fully knowable ‘intrinsic value’ - you just have a best guess); the pricing action here is what distorts this fact. SP500 goes up, sure it could be driven by ‘earnings’ but that’s just a feature of a stock, it needs to be driven by actual cashflow back to the investor to be ‘valuable’.
Finally Currencies; they don’t really have a ‘value’ because what are you valuing them in? You can only really value them in what they can purchase, but they don’t actually have any innate cash-flows, 1 USD will always be 1USD. It may buy more in the past, it may buy more in different countries, but it will only ever be 1 USD. So then where does ‘value’ come into currencies? Well it is how much other currency can you get for it (though that’s not a sign of ‘value’, it’s just a reflection of supply and demand - which is more likely than not driven by arbitrariness. I.e. Why is the USD the base currency for the world? It’s a rather arbitrary decision, but it works because everyone does it. Without the base currency status that 1 USD will still be worth 1 USD, but it wouldn’t be able to buy as much other currency.
This means all the previous assets denominated in USD are rebased on this fact. If I buy a bond worth 100 and pays me 5%, good for me, I have a valuable asset, but that value is only determinable in USD, because I don’t know what it would be worth in another currency (unless I know the exchange rate - which as discussed above, is largely driven by arbitrary factors).
And so when you are looking at crypto-currencies you have to think about the fact that 1 Bitcoin will always be 1 Bitcoin, and you’re trying to compare it from a USD perspective to determine if it’s an ‘asset’, you won’t be able to. Because the USD value (arbitrarily determined because of supply and demand) may be say 20% less than say the South Korean value (determined by supply and demand there) (and so then you could ‘arbitrage’, buy with USD and sell in KRW and then swap back to USD), but that again is simply an economic way of getting everyone to just arbitrarily ‘agree’ what it should be based on the nature of FX markets.
https://www.cnbc.com/2018/08/27/the-anti-dollar-awakening-could-be-rude…
Seems like a lot of smart macro guys are starting to recognize the value of Bitcoin and crypto as a new technology for offshoring wealth and avoiding capital controls. I Don’t think it’s a coincidence that the recovery coincided with reports of China limiting the amount of bank withdrawals and the trade war heating up again. As taxes and threats to wealth increase in the 21st century i expect crypto to continue to stick around as it’s infinitely more accessible than trying to smuggle physical gold/fiat out of a country
Care to share who?
Passport doesn't count IMHO and Novogratz is flipping shitcoins
Alan Howard has a crypto firm: https://www.bloomberg.com/news/articles/2019-03-12/alan-howard-s-elwood…
The blockchain is quite literally one of the only (if not the only) objective truths in the world.
... what is "intrinsic value"?
What matters is if you can make money out of it - yes.
A podcast I found interesting was Anthony Pompliano: Murad Mahmudov: The Ultimate Bitcoin Argument.
If you don't know much about bitcoin or why some people are so crazy about it this podcast will be super helpful. Murad is a bitcoin maximalist and makes a case for Bitcoin being the global reserve currency.
Together Anthony and Murad address many common bitcoin criticisms, some of which have been mentioned here; transactions per second, criminals using the currency, volatility, and many more. Murad is certainly one of the most interesting guys in the crypto space.
If you began dollar cost averaging from bitcoin's 2017 high of 20k, you have been profitable since May 10th.
I think the argument of what, if any, value or kind of value cryptos have cannot be answered until they are traded on a regulated exchange. They are too susceptible to price manipulation on the current exchanges.
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