Notable mainstream attention has shifted toward Bitcoin amid its meteoric rise, with the asset having recently tapped over $52,500 per coin. Bitcoin (BTC) has seen an increasing wave of interest from mainstream companies, gaining status as a hedge, unique from other asset classes. What makes Bitcoin valuable, though?
Perhaps one of the simplest answers regarding Bitcoin’s value is that it’s “worth what somebody will pay for it,” as stated by billionaire Mark Cuban in 2019. A number of other components factor into the equation, however, making BTC unique over its competition. Although, Bitcoin is still young when compared to assets such as gold and stocks, so it must continue proving itself and gaining traction. The asset’s failure is still possible and is also prone to volatility.
Bitcoin’s history and basic use
Pseudonymous creator Satoshi Nakamoto published the written framework for Bitcoin in 2008. The asset subsequently went into circulation in early 2009, pegged to no specific value. BTC circled around online communities and such through the years, gaining value over time as an online method of payment requiring no involved sensitive user information. Regardless of its historical journey upward in price, Bitcoin is now often seen as a store of value, holding a number of valuable characteristics.
People can buy Bitcoin on a crypto exchange and send it to a wallet they personally control on a device or online. One of Bitcoin’s selling points is that users can send the asset virtually anywhere in the world quickly, at any time, without divulging personal information, as well as control their holdings themselves.
Big-player purchases
Over the past year or so, multiple sizable mainstream companies have added significant exposure to BTC. Tesla, one of the 10 largest companies by market cap according to AssetDash, bought $1.5 billion worth of Bitcoin, announced on Feb. 8, 2021. In addition to others, Square also announced a $50-million move into BTC in October 2020.
Business intelligence outfit MicroStrategy bought over $1 billion of the coin, as led by the company’s CEO, Michael Saylor. A former skeptic, Saylor is now one of the asset’s biggest proponents. He also personally owns more than 17,000 BTC, as of his tweet from October 2020.
The recent Bitcoin purchases have seemingly surfaced amid economic unrest after COVID-19 captured the public’s attention in early 2020. The United States government increased the activity of its cash printer in subsequent months after the pandemic’s onset, through quantitative easing, leaving the future value of the country’s dollar a mystery.
The rationale for Bitcoin’s value
As a borderless, decentralized asset run by a network of computers around the world (called miners), Bitcoin and its price are not technically tied to any governments, markets or currencies. At times, its price travels in line with other markets, while at other times, the asset’s value moves to the beat of its own drum. Some crypto industry leaders, such as Anthony Pompliano, co-founder of Morgan Creek Digital, posit BTC as a non-correlated asset.
Fidelity Digital Assets published a report on Bitcoin in October 2020 that found “almost no relationship between the returns of bitcoin and other assets” between the start of 2015 and September 2020.
Since entering the BTC arena, MicroStrategy’s Saylor, who sits in fourth place on Cryptox’s list of the top 100 people in blockchain for 2021, has taken numerous interviews in which he has clearly articulated valuable aspects of Bitcoin. Saylor said in a February 2021 interview posted by Cryptox:
“I think the story that needs to be told much more is that Bitcoin is a masterpiece of monetary engineering.”
“It’s the first successfully engineered monetary network in the history of the world,” Saylor said after referencing aspects of science and engineering, as well as his studies at the Massachusetts Institute of Technology.
“Bitcoin is rotating this year from the old insight narrative which is, it’s an uncorrelated speculative asset traded by retail traders on off-shore exchanges with leverage that’s kind of cool,” Saylor said in a December 2020 interview with HyperChange. “It’s rotating to a new insight, which is it’s the world’s best long-duration investment-grade safe-haven treasury asset,” he added.
Saylor continued to mention Bitcoin’s long-term potential as a wealth storage vehicle that sits away from government control, as well as a different mindset that comes with such a use case, leading participants to hold BTC for extended periods of time rather than trading for shorter-term profits.
Further BTC value arguments
Unlike national dollars, gold or other assets, Bitcoin holds a finite supply. Only 21 million BTC will ever exist, based on the digital asset’s code. At the time of publication, Bitcoin’s circulating supply is around 18.6 million. Through mining, more BTC is released from its maximum supply into its circulating supply, but that maximum supply will not change. Meanwhile, the work and expenses put into creating BTC mark the more tangible point from where Bitcoin derives its value from.
With Bitcoin, holders can also store and transfer large sums of money much more easily than other hedge assets, such as gold or real estate. Bitcoin has seen its fair share of comparisons to gold over the years — at times being called digital gold.
“You can’t debase it; it’s not a fiat derivative like a bond or a stock,” Saylor said of Bitcoin during a January 2021 interview with Nomad Capitalist. “If you’re looking to the long-term outlook — 10 years, 20 years, 30 years — then owning Bitcoin is like encrypting your monetary energy in a way that will preserve it without any degradation over the long term,” Saylor explained.
Investors can purchase fractional parts of a Bitcoin, such as 0.001 BTC, for example. Bitcoin can also be viewed as an industry or ecosystem of activity and development, similar to the internet when it took off decades ago, and buying Bitcoin gives the investor financial exposure to that ecosystem, according to Tyler Winklevoss, co-founder of Gemini, a crypto exchange.
“It’s sort of like owning a piece of the race track without having to bet on which horse is going to win,” Winklevoss said during a December 2020 interview with podcaster, YouTuber and entrepreneur Casey Adams. “As long as the races are running, you make some money,” Winklevoss added.
Arguments against Bitcoin
Some have expressed numerous arguments against Bitcoin over the past decade or so. The digital asset has endured multiple volatile cycles, rising dramatically in price followed by subsequent retracement periods — sometimes seeing up to 80% or more of price decline over time before resuming its uptrend.
Gold advocate and financial commentator Peter Schiff has stated his skeptical position on Bitcoin on numerous occasions. “Now that #Bitcoin has hit $50,000 I must admit that a move up to $100,000 can’t be ruled out,” Schiff said in a February 2021 Tweet, adding:
“However a move down to zero can’t be ruled out either. While a temporary move up to $100K is possible, a permanent move down to zero is inevitable. If you don’t want to gamble buy #gold.”
Others have also called Bitcoin a bubble, such as Russian politician Anatoly Aksakov in early 2021. Additionally, Kenneth Rogoff, a professor at Harvard University, proved hesitant on BTC in January 2021. “I’ve been a Bitcoin skeptic, and certainly, the price has gone up, but there’s sort of an ultimate question of what’s the use,” Rogoff told Bloomberg. “Is it just valuable because people think it’s valuable? That is a bubble that would blow up,” he added.
Still, even though Bitcoin is not technically “backed” by anything, it is also not tied to the debt or struggle of any specific country. It is run by the people, is borderless, and allows users to hold and control their own funds, as well as transact globally quickly. The asset has endured its fair share of adversities since its inception, growing in adoption with every cycle.
