r/investing
The Paradox of Bitcoin Valuation: What Are You Actually Buying?
Author argues Bitcoin lacks intrinsic value, unlike stocks and fiat currencies backed by underlying assets, cash flows, or collateral.
- Bitcoin lacks intrinsic value as it is merely an abstract number without future economic benefits or cash flows.
- Unlike stocks, fiat currencies, or redeemable tokens, Bitcoin has no underlying assets, collateral, or redemption mechanism to justify its price.
If you were to ask any Bitcoin buyer why they paid $80,000 for a single Bitcoin, the answer would almost always be the same: the market determines the value.
But that answer is circular. The market is not some abstract force or a law of nature. The market is made up of people, and that very buyer is part of it. Therefore, the question actually boils down to something much simpler: what exactly were you determining to conclude that it was worth paying $80,000?
Of course, there would be no answer because what they actually bought is a 21-millionth part of a number that an unknown programmer simply made up. Since a number is an abstraction, not a resource providing future economic benefit, there is nothing to determine.
This becomes clear when we look at how value is determined in other cases, and how we know whether a market price is too high or too low.
If someone tried to sell you a share for $1,000, and that share only entitled you to $10 worth of assets in the event of liquidation while generating an annual profit of one dollar per share, you would know immediately that the price is unrealistic.
With money like the dollar or the euro, which is created through lending, you can determine value by the collateral behind it. No one can obtain a loan without an asset or a business project serving as security for repayment. If someone asked for your house in exchange for an amount of money that a bank created using a motorcycle as collateral, you would reject the offer. The reason is simple: the borrower can lose no more than the motorcycle itself. To repay the loan, they will provide goods, services, or labour to the market roughly proportional to the value of that motorcycle, not the value of a house.
With tokens like PayPal’s electronic money or casino chips, you determine the value by the possibility of redemption. For one unit of such a token, the issuer will pay you one dollar or one euro, so there is no reason to pay more than that on the market.
The same applies to physical or digital products. When we determine whether a price is reasonable, we look at the product's function.
If someone asked you for $80,000 for a pound of wheat, you would reject them immediately. Not because you know some "true" price of wheat, but because you can get the same nutritional value for a few dollars by buying other food. If Microsoft asked $20,000 for its operating system, most buyers would reject that price because computers can also be run by free operating systems like Linux.
In all these cases, there are concrete resources whose future effects we can determine to establish whether the market price is too high or not.
With Bitcoin, none of that exists. There is no corporate capital, no debt, no obligation of redemption, and no product with a function.
There is only a computer system by an unknown programmer that displays parts of the number 21 million to users and stores those records using a peer-to-peer network.
Because of this, Bitcoin buyers cannot look at the future effects of a resource to determine whether the market price is too high or too low. Buying comes down to a simple principle: pay and hope that someone else will pay more.
In this sense, the "Bitcoin market" is not actually a market, but a kind of participation-based scheme. In actual markets, prices are formed around determinations of a resource's future effects. With Bitcoin, however, there is only the hope that a new participant will pay more. In other words, it is a scheme whose sustainability depends on the continuous participation of new buyers, rather than on the economic effects of a resource.
In the end, when you pay $80,000 for Bitcoin, you haven't bought the future of finance, but the right to participate in a waiting game. The market does not determine Bitcoin's value; it merely measures the amount of hope that someone will appear who is willing to pay even more for a piece of a number from someone's imagination.
tl:dr OP is bagholding Bitcoin, please pump.
Op doesn't sound like they own Bitcoin
that would be majority of the people who think they own bitcoin. They are creditors to shady exchanges that may or may not have the assets to cover their books.
OP has a history of posting almost weekly regarding Bitcoin (bot maybe?) and historically leans towards trying to pump it.
I've seen their posts before and it's always bearish nocoiner talk and like others say it's so frequent and they never reply so I'm convinced it's a bot made by someone with a chip on their shoulder about Bitcoin of which there are plenty.
Oh look it’s the same guy that posts about bitcoin every single week.
Does this not apply to gold and usd too
Gold has actual uses in electronics and manufacturing, and can also be used as Jewellery.
Fiat Currency is needed to pay taxes in, and is also backed by the power and resources of the state that issued it.
I’m sure golds price is very reflective of its use for electronics and jewellery.
No.
One is a hope based solely on hype that has lasted two decades.
One is a hope based on human tendency that has outlasted hype cycles longer than our history.
One is a hope backed by legal ownership and military force and automatic agreement by millions.
Not the same at all.
What's hype about having a deflationary currency that isn't controlled by any entity/government/bank? Have you actually researched BTC?
Youre saying USD has outlasted hype cycles? It's nearly lost half it's value in just 20 years - so things aren't looking good for it.
You sound like you’re from a country where the economy and politics are stable. That’s not the case for many of us. Moving wealth across borders can be incredibly risky due to confiscation. Traditional banking systems aren’t always reliable. Hyperinflation exists. Capital
Controls can be problematic. The ability to preserve, transport and easily convert wealth is Bitcoin’s best feature.
This is why I hold bitcoin. I see the future of the dollar looking pretty bleak with the rest ofthe world determining that the U.S. is a risky ally and an even riskier investment (our housing market is declining, our food production is declining, our resources are increasing being held close to chest). In the event the U.S. dollar becomes useless and I need to transact something directly to another countries currency, bitcoin is a lot easier to handle. It is a hedge against the apocalyptic event of massive deflation of the dollar. Could I do that in gold? Only if I can carry bullion or sacks of jewelry which in a state of devastation would make me a target worth killing and also be unfeasibly heavy.
Thanks for your post.
Bitcoin's actually more traceable than cash nowadays
It feels to me like you are from Europe or USA, no is bombing you, you have an access to the stock markets, you don’t need to leave your house asap and flee to another country, your country didn’t collapse last 50 years, your currency didn’t experience 1000% inflation, you probably even can take a brick of gold through the border to another Euro or US state. Good for you! You won the lottery by being born in a safe place. Unfortunately for us… we don’t have that luxury always. Bitcoin is one of the best tech revolutions for us.
Crypto and investing shouldn't even be in the same sentence
In short, to buy BTC is to bet on the continuing supply of Greater Fools and on your own ability to recognize when that supply is about to run out.
Crypto is the worst kind of fiat money. It has zero intrinsic value. You can use gold, you can burn cash, you can trade seashells.
BTC goes to zero anytime the power goes out.
Bitcoin is down because of opportunity cost - when markets stagnate or demand for bitcoin goes up (criminal pay offs) - it rises. With a bull stock market, people move money to where they can make money. Bitcoin can easily rise again when the U.S. stock market cools off. You have plead a case that people have been pleading for over a decade now and a large number of millionaires have been made in the meantime. I looked at google once in the era of overly crowded hubs and landing pages at this company providing "just a search bar" and thought - people don't want that, they want to go where their email and news is. Look how wrong I was. Sometimes we have to open our mind to the possibility that there are people out there that hold perspectives that are not our own.
I implore you to consider that bitcoin came into existence because there was a demand for a different system by a small subset of people that has been growing across the globe. Gold was too hard for the everyday person to acquire in meaningful amounts and also move in meaningful amounts. I can't reasonably take large sacks of gold on a plane without a lot of people asking questions and in countries where its not safe to travel with obvious items of value, you can do the math.
Consider that if the banking system itself were to become beholden to the rich and powerful and individual citizens could be sanctioned for their public speech against corporations or even individuals, there would come a demand for a different means of moving money. Bitcoin is indeed a bet against fiat currencies and the concept of democracy (maybe not just democracy but its betting on a higher risk world of more oligarchy, tyranny, fascism, and dictatorship). With the progress of AI to analyze large amounts of data and surveillance technology taking leaps and bounds yearly - its not an unimaginable world.
Currency as a concept at some point in human history was a wild idea - Why would I want shiny stones when I need meat?
Fiat currency seemed like a wild idea at some point in history I'm sure - Why would I want paper when the shiny stones have a function?
Is this thing for you? probably not.
Could it all go up in flames? absolutely.
obviously crypto is a Ponzi scheme
Yes, tell me again, what sort of returns are the CEO of Bitcoin promising?
Please see the Tulip Bulb Mania of the 1600s.
Now, all the money that was going into crypto is chasing AI and SPCX.
I do give the crypto people credit for creating vague and obtuse terminology that makes them sound like they know something that you don't.
You discovered basics of economics, like 200+ years old basics. Markets work because almost no-one knows exactly what the price will be, each is doing his best guess.
Re: bitcoin vs. real assets - good luck to you with "production function" of human capital or R&D or intellectual property.