price or intrinsic value; Which factor is effective in the success of Bitcoin?

Despite occasional dips, Bitcoin has been consistently rising in its long-term trend. Many more traditional economic advisors see it as just a bubble that will burst soon, and many others deny its intrinsic value. However, the growing demand and acceptance of this digital asset around the world shows another truth. This increasing demand is reflected in the upward trend of the Bitcoin price.

Alex Thorn, director of Firmwide Research at Galaxy Digital, a digital currency investment company, discussed the value of Bitcoin in one of his recent speeches.

In his interesting and readable argument about the value of Bitcoin, Thorne addresses financial advisors; But it expresses this content in a way that investors can benefit from it. For this reason, this article helps an article From CoinDesk we have devoted to a summary of his talk. What you read next is written by Alex Thorne.

Read more: How Bitcoin Changed the Game?

Market efficiency and bitcoin price

A theory called “Market Efficiency” states that asset prices are affected by all the news and information related to them. Economic consultants are placed in two categories depending on their view of this theory.

The first group of advisers state that the market is efficient. Most financial advisors fall into this category. According to these people, the stock you buy doesn’t matter and you should just invest in the market. As a result, they believe that investing in index funds and a diversified asset portfolio is better than choosing and investing separately in stocks.

Advisors who believe in an efficient market believe that the price of any asset reflects its true value; Therefore, no asset is valued more or less than its original cost.

Inefficient market theory

The second group of advisors believe that the market is inefficient and that various assets are not valued based on their true value. They consider programs similar to the government plan of the retirement savings account to be a useless mixture of several stocks and bonds that block the way to choose the best investment for the individual; Because many major stock market indices [ایالات متحده] They do not include the most profitable assets.

Read more: The article that will change your view of Bitcoin; A new definition of new money

These consultants believe that the inefficient market requires active investment and the careful selection of hand-picked assets that can provide more potential returns to the investor. According to them, the price of assets does not reflect their real value and these prices may be wrong or a bubble. Needless to say, many believe that while the market is not perfectly efficient, it is on the way to becoming efficient.

Now the question arises, why do many financial advisors try to see Bitcoin from the lens of efficient market theory? These people call Bitcoin a scam or a price bubble. This is despite the fact that the market value of Bitcoin has been growing continuously since 2009 and it has been the best performer among different assets for many years.

The price of Bitcoin is proof of reality

Economic advisors who believe in the efficient market hypothesis, who consider Bitcoin a scam or a bubble, actually have two contradictory opinions. If the efficient market hypothesis says that the price of an asset is a good indicator of its true value, then the same standard can be applied to Bitcoin.

In fact, if you believe in the efficiency of the market, you should consider the price to be real. The persistence or growth of the value of any asset proves that this asset has real value, whether some or all market participants agree or disagree.

The price of Bitcoin shows the demand for this full-fledged and global money. The Bitcoin market is open 24 hours a day, 7 days a week, and all market participants have the same information about how Bitcoin works. Everyone can see the mining hash rate statistics or the number of daily active addresses or the volume of 24-hour transactions in the Bitcoin blockchain.

Charts for Bitcoin statistics follow a clear pattern. They represent an increase in the price of Bitcoin, which has maintained its upward trend for the past 14 years.

Meanwhile, Bitcoin may experience sharp fluctuations and price drops in shorter periods. However, this digital asset has maintained its superiority over other assets recommended by financial advisors in terms of long-term return on investment (ROI) and compound annual growth (CAGR).

Why is Bitcoin valuable?

Over time, if a certain asset is considered worthless by the market, it will either rise to its true value or fall in price due to user arbitrage. The digital currency market is full of these events. Examples such as FTT and Luna (LUNA) tokens have shown this well; But throughout Bitcoin’s lifetime, this asset has never been considered worthless.

Read more: A look at the ethical philosophy in Bitcoin; Why is Bitcoin more ethical than fiat money?

Furthermore, many financial advisors argue that Bitcoin has not yet lived long enough to prove that its price will hold over time. This is despite the fact that only at the end of 2022, the active hours of the Bitcoin blockchain were more than the S&P 500 stock index. Bitcoin trades have been active for 110,224 hours and the US S&P 500 index has been active for 107,217 hours.

Now, critics may say that the S&P 500 index has been around since 1959 and has proven its value during this time. I also disagree with this view; Because a large part of the history of this index is related to before the invention and expansion of the Internet. Since then, the world has undergone many changes.

Bitcoin is a more powerful and unlimited market, and no third party or regulatory body can take over the situation by cutting off users’ access when there is increased selling pressure or breaking news.

Denial of intrinsic value for Bitcoin

“Bitcoin’s price does not reflect its intrinsic value.” Many economic elites and financial experts apply this sentence to Bitcoin; But the important question is what is intrinsic value? In my opinion, there is no such thing.

The value of each asset is determined based on the needs of users at a certain time. Value has always been and will always be a subjective matter. The only driving engine of the market is “demand” and history has shown us this issue.

In fact, the idea of ​​intrinsic value does not make much sense. The answer to the question of whether a Rolls Royce is worth more than a bottle of water simply depends on your location and needs. For example, if you’re stuck in a barren desert, a bottle of water is definitely worth more than a Rolls Royce. Although this example is a bit of an exaggeration, the point is that only demand creates value. This fact does not change over time.

Bitcoin is the base currency

Another reason to ignore the intrinsic value argument is that Bitcoin is a fiat currency. This asset has no backing; Because it is purely a monetary asset. In fact, an asset should only be supported by something else if it has no valuable properties.

Read more: What is the value of digital currencies and what is their support?

For further explanation, I refer to a sentence from the book “3 Reasons I’m Investing in Bitcoin” by Lyn Alden, which explains this best:

Although [بیت‌کوین] It has no industrial use, it is rare, durable, portable, divisible, verifiable, storable, exchangeable, salable and known all over the world; Therefore, it has the properties of money. However, [بیت‌کوین] Like all “potential” money, it needs sustained demand to have value.

Bitcoin has gone from zero value to global money, and this can be considered one of the most important achievements of any financial technology. The price of Bitcoin clearly shows its demand and acceptance.

We live in a world that is slowly accepting Bitcoin as money; Of course, this path will be full of bumps. Vijay Boyapati in his book “The Bullish Case for Bitcoin” sums it up like this:

No one has ever seen the conversion of goods into money; This is what is happening to Bitcoin now. Therefore, we have almost no valuable experience of the path that Bitcoin takes to become money.

A recommendation for economic advisors

Most economic advisors still do not see the need for Bitcoin in their clients’ investment portfolios. In fact, they are so involved in the sidelines that they are oblivious to the main story.

Read more: Bitcoin and the concept of economic freedom; Why will the world be more beautiful with Bitcoin?

There is no doubt that the United States is the last place that needs better money. Americans have the privilege of being the world’s most valuable reserve currency (the US dollar), which makes them less vulnerable to an inefficient economy and money. In this article, I am not claiming that the US dollar will fail; Rather, history shows us that the global reserve currency will eventually become worthless.

With all these words, if you are also an economic consultant, suggest investing in Bitcoin to your clients. There is no harm in doing this, and if you make a mistake, you won’t lose much. However, if you are right and Bitcoin takes over again, you can change the lifestyle of your customers.

What should be important for you as an economic consultant is whether you can continue to work with your current approach for the next decade? Are you open to new changes in world money in the coming years?