I Shrugged wrote: ↑
Tue Jun 08, 2021 1:41 pm
vincent_c wrote: ↑
Tue Jun 08, 2021 8:23 am
I Shrugged wrote: ↑
Sun Jun 06, 2021 6:47 pm
I can see that say a Bitcoin has intrinsic value because it takes a lot of energy to produce it. Just as it takes work to produce gold.
Say all the gold in the world was mined and sold. Supply of gold only coming from people who choose to sell gold and vice versa. Does intrinsic value say that gold cannot have an arbitrary price because the market has to price it relative to competing goods and services?
For example, if the price of silver goes up and drives up silver jewelry and we make an assumption that people always will pay more for gold vs silver jewelry. There is a wide range of potential applications for gold that places a floor on price relative to other commodities.
Now if all bitcoin were mined, what can we compare it to? If it were used as payments we could compare it against the costs of alternatives but even if we assume bitcoin is a competitive form of payments (the coin itself perhaps not, but the blockchain can be), the cost for payment alternatives can quickly approach zero.
Bitcoin would have to have a globally recognized superiority over another commodity in order to have what might be called “intrinsic value”. I’m not sure it has that since it is positioned against gold and it’s possible gold is even a superior asset in some ways.
Am I missing anything that might give bitcoin that relative value?
I am not bothered by the intrinsic value or lack thereof. My original comment on it was just a joking reference.
The most interesting question to me is, what gives bitcoin its high value? Sure there is relative scarcity. But what is the unique selling proposition? It has to be the anonymity (admittedly using that term broadly so we don't have to go down the anonymous/pseudonymous hole). If bitcoin was just a way to use blockchain and the transaction parties were completely known to any government, I don't think people would be paying $36,000 for one. In other words, while the blockchain may be elegant, it's not adding value anywhere near what people are paying for crypto. Or so it seems to me. No one can say for certain why bitcoin's price is what it is, but that's my present belief.
It's just an new class of speculative asset. There is a list of marketing features. Anonymity is only one. There is the presumed (eventually) finite supply. It capitalizes on the ever present fear that the USD is on the verge of collapse. Right now, the risk of increased inflation is another feature. It is very appealing to those that live with a demarcation in their minds between that which is old and traditional, and that which is new and leading edge. I fail to see where the energy consumed in the mining process translates to stored value.
In the US, the IRS killed any prospect of being used as a currency or medium of exchange, when they deemed it property. Hence every transaction involving crypto will carry implied gain or loss.
At the end of the day, it really has no intrinsic value in the sense that you could consume. Or yield that it will generate. The limited supply makes it like a sophisticated version of a limited edition baseball card (or pick your collectible).
It's only worth what someone else will pay you for it. A speculative wager.
I suspect it will grow in popularity, especially in times of upward volatility where FOMO causes dogpiling. BTC and Ethereum have both survived their infancy, which is a good sign. A big risk in my mind would be if there were ever a time when the US government considered crypto a threat to its currency or the banking system. That happened in 1934 and FDR banned/confiscated gold, and the power of a crisis enabled him to do so. People say that will never happen again, but I'm not so quick to believe a leopard will change his spots.
My personal policy and advice to any friends who care to listen, is resist joining the crypto cults. Some of them are like religious zealots.
If you're an adventurous investor (gambler), don't put any more into it than you could truly afford to lose.