Bitcoin Intrinsic Value – You Need to Know This!
Does Bitcoin have an intrinsic value? Before we talk about the intrinsic value of Bitcoin, let’s have some know-how as to what Intrinsic value actually is? In simple terms, it is any value of a commodity as opposed to its market price. Intrinsic value takes into account other factors such as its demand, acceptance, and its usability or the way society and the people values it.
Gold is one of the assets possessing intrinsic value. We can factually say that gold has a value on its own. This value does not come from the international gold market but from the way people perceive it. Gold is the oldest store of value as it doesn’t rust or decay as compared to its counterparts.
This, in turn, gives gold a higher edge in terms of value. Simply, because people think it to be valuable and it is. Coming to Bitcoin, several factors determine its intrinsic value. A commodity is believed to have intrinsic value when it is used for reasons other than a mode of payment or store of value.
Similarly, the intrinsic value of Bitcoin can be because of several factors. Before we move read forward, our readers need to know that the intrinsic value of Bitcoin is simply the price people are willing to pay for it independent of the market price. For example, let’s suppose for a moment that suddenly there are not any Bitcoin exchanges for a moment. And traders are looking to sell their Bitcoins at any price they can get.
The price can be $100, $1000 or even $1. Whichever, the price they will fetch, will constitute as Bitcoin intrinsic value. The reason behind it is that this value will not come into effect by the market forces of demand and Supply. Rather the price will come as a result of the value that individual buyers will assign to Bitcoins. So well, where does this value comes from?
Bitcoin Intrinsic Value
Cost of Mining
This is a major factor that contributes to Bitcoin’s intrinsic value. The cost of mining is the total cost to produce the new units of Bitcoin. A miner is likely not to sell newly generated Bitcoin at a loss unless he is rich enough to do so. Why would a sensible person incurs $3000 to mine a single Bitcoin and agrees to sell it for $2500?. Of course, he will tend to wait for a better bargain. This also establishes a psychological price for Bitcoin on many levels. As a fact, Bitcoin takes more energy than mining copper or gold!
When Bitcoin mining was easily accessible to the masses, its price was very low. This is because the cost associated with one Bitcoin at that time was not as high as of now. But as GPU and then ASICs hardware started to replace the traditional CPU mining method, the price skyrocketed to new peaks to compensate the miners with regards to their mining cost.
If someday, there isn’t any Bitcoin online Crypto exchange and if any trader would come to me and ask for my quotation regarding a single Bitcoin. I would know that this “Bitcoin” at least have some cost associated with it.
The limited supply
Scarcity is one of the major reasons for a commodity to have value in itself. We know that Bitcoin is not backed by assets or some institutions that can control its supply to meet the demand. In fact, just like gold, Bitcoin is scarce in number, which creates room for price to reach new highs as time passes.
Gold is valuable in its own since it is finite in number. Everybody wants to have their hands on this commodity since it doesn’t rust and have been the oldest store of value. Similarly, Bitcoin boasts the same features. It doesn’t rust and is also more divisible than later.
Besides, the demand and acceptance of Bitcoin are gradually increasing while the supply is constantly taking a hit. The total number of Bitcoin that will exist will never be more than 21 Million. This factor further adds to the intrinsic value of Bitcoin!
Who doesn’t like Independence, especially when you talk about it in terms of finance? Bitcoin makes a person independent from the hassle of the bank and online institutions that require credit card information during purchases.
It is a one stop to make payments, and you will not be required to submit reasons or contact your bank to process the transaction regarding your own money. Of course, Bitcoin highly leverages here in comparison to gold since gold cannot be used to make online payments since it is not divisible like Bitcoin.
Additionally, Bitcoin is also portable to any part of the world. It is a perfect solution for cross border payment. This factor alone influences the intrinsic value of Bitcoin, where many people accept and use it as a method of payment and cross border transaction to avoid hassle with banks.
Winding up, above are some of the factors that can answer your concerns about bitcoin intrinsic value. Of course, there is more than these. This can include its divisibility, the people’s perception of Bitcoin, and Crypto usage as a store of value. In short, any valuation that people will give to Bitcoin independent of market forces will constitute as its intrinsic value!