Bitcoin is a speculative asset with no intrinsic value (and that’s okay)
L ooking down their nose, they will scoff, “bitcoin is a speculative asset. It has no intrinsic value.” With an air of superiority, they turn to walk away, muttering to themselves about how foolish someone must be to take a thing like bitcoin seriously. Bitcoin advocates have witnessed something akin to this thousands of times, and many feel the urge to respond by leaping to bitcoin’s defense.
Let me tell you, it’s no use—they’re right, after all. Bitcoin is indeed a speculative asset. Bitcoin indeed has no intrinsic value. To disagree with facts such as these would only validate their assessment of your folly.
Instead, the correct course of action would be to agree with them, followed by a strategic deployment of the Socratic method. For instance, consider expressing curiosity about what their favorite non-speculative asset is, and the details about its intrinsic value. The ensuing conversation might begin to reveal that their triumph of stating a couple facts about bitcoin wasn’t quite the victory they thought it was.
Bitcoin is a speculative asset
“A tendency prevails to make a sharp distinction between such purely speculative ventures and genuinely sound investment. The distinction is one of degree only. There is no such thing as a nonspeculative investment. In a changing economy action always involves speculation. Investments may be good or bad, but they are always speculative. A radical change in conditions may render bad even investments commonly considered perfectly safe.”
— Ludwig von Mises, Human Action
As Michael Goldstein explains in his article Everyone’s a Speculator, logic demands that all assets are speculative. It is impossible for a non-speculative asset to exist, because the future is always uncertain. We can’t know all of the factors that will determine future outcomes, all we can do is make our best guess with the information we have.
“Strictly speaking, every good that we buy and sell is a “speculative asset.” Bitcoin is certainly a “speculative asset,” but so are pencils, cars, and ice cream. While you bought vanilla ice cream today, it may turn out later that you want chocolate, or a completely different dessert altogether. You could not have known this ahead of time. You could only make a judgment based on the fact that you usually desire vanilla ice cream.
Further, if you are speculating on an asset (and you always are), you’re also speculating on all other assets, because the buying or selling of one good necessitates the opportunity cost of not buying or selling another good.”
— Michael Goldstein, Everyone’s a Speculator
Therefore, the accusation that bitcoin is a speculative asset isn’t really claiming anything of interest or significance. When pressed, the issuers of such accusations will often clarify that they believe bitcoin is “purely speculative.” Perhaps they are intending to suggest that bitcoin can’t possibly be used for anything other than gambling, or being traded to a greater fool.
But of course, it’s not true that bitcoin can’t be used for anything else. Many people use bitcoin as the healthiest long-term savings unit, because it has the most predictable future monetary policy compared to anything else. The number of dollars in existence per bitcoin rises over time, so it’s only rational for someone to want to convert dollars held into bitcoin held.
Bitcoin has no intrinsic value
“Value is a judgment economizing men make about the importance of the goods at their disposal for the maintenance of their lives and well-being. Hence value does not exist outside the consciousness of men.”
— Carl Menger, Principles of Economics
As Trey Sellers explains in his article The Intrinsic Value Myth, all value is subjective. It can’t exist objectively, as an inherent property of something. Value is a relationship between the thing being valued, and the mind that values it. If you remove the mind from the equation, and claim “this thing is valuable,” the question remains “valuable to whom?” To you making the claim apparently, but what happens when someone else disagrees?
“Value doesn’t reside in the physical or tangible properties of an item — like the gold in a coin or the silicon in a computer — but in the human mind. For example, a glass of water might be priceless to someone dying of thirst in a desert, but virtually worthless to someone with easy access to clean water. The water’s intrinsic properties don’t change, but its value shifts dramatically based on context and individual need.”
— Trey Sellers, The Intrinsic Value Myth
♬ “All day I’ve faced, the barren waste, without the taste, of water…” ♬ — Hank Williams, Sr.
For any given product or service, each person is willing to pay a different cost (or no cost at all, if they don’t want it to begin with). If value were intrinsic, it would mean that only a few people have an accurate understanding of the true value while everyone else is wrong, a perspective which is perhaps just a tad arrogant.
It would also mean that if everyone were rational and well-informed, everyone would desire things with equal fervor, and agree on the appropriate cost. Everyone would have the same opinions about everything. Trade would be unable to occur—if the intrinsic value of a loaf of bread were equal to the intrinsic value of $2.00, then nobody would have anything to gain by exchanging one for the other. Trade results from a disagreement on value, not an agreement on value. You buy the bread from the supermarket for $2.00 because you value their bread more than your money, while the supermarket values your money more than their bread. Trade is usually a beautiful, mutually beneficial occurrence, not someone taking advantage of someone else’s misunderstanding of intrinsic value.
Ultimately, “intrinsic value” is an oxymoron, an absurd term that should be avoided by serious people. Nothing has intrinsic value. The accusation that bitcoin has no intrinsic value is not a particularly enlightened opinion. What the accusers are intending to suggest is that bitcoin has no utility, but once again, this is easily disproven. I’ll repeat: many people use bitcoin as the healthiest long-term savings unit, because it has the most predictable future monetary policy compared to everything else in existence.
Other misunderstandings
While we are on the topic of irrational excuses people use to dismiss bitcoin, let’s cover a few more.
“Bitcoin isn’t money or currency because it’s not used as a medium of exchange.” As I tried to explain in an earlier article, as long as bitcoin is held by people aiming to store trade value between exchanges (which it is), it absolutely is a medium of exchange. If someone doesn’t want to consider it a bona fide form of money due to it’s relatively low levels of adoption, that’s fine with me—as long as they admit that bitcoin is at least a prospective money, because its adoption can continue to grow.
“Bitcoin is a non-productive asset, it is unable to produce cash flows.” This is true, but not a reason to avoid holding it. The status quo for money is being a non-productive asset. Furthermore, bitcoin has strong investment potential—it reigns as the premier savings technology, with currently less than 1% global adoption. It has a limited supply and a massively untapped addressable market for demand. If someone wants to grow their wealth, it’s a clear opportunity, and likely a better one than most productive assets. Once it approaches 100% global adoption, bitcoin may become less of an investment and more of a pure savings tool, and it could become more reasonable to deliberate between holding bitcoin versus a productive asset with higher risk and higher reward potential.
Conclusion
Let’s be forthcoming about what bitcoin is and what it isn’t. Bitcoin is a speculative asset with no intrinsic value. But that’s okay, because this description can be accurately applied to all assets. Bitcoin is a non-productive asset, but that’s also okay, because that’s normal for money. Bitcoin is indeed a medium of exchange, because people are using it to preserve trade value over the long-term. They have found it possesses unique properties advantageous to this task. These properties describe bitcoin’s utility, which most certainly exists, beyond mere gambling and greater fool theory.