Does Bitcoin Have Intrinsic Value?

Summary

Matthew Cradder from Bitcoin University addresses the question of Bitcoin's intrinsic value, countering common criticisms and comparing it with gold and fiat currencies. He argues that Bitcoin's value lies in its robust global monetary network, verifiable scarcity, and utility as a digital bearer asset, despite lacking the traditional 'intrinsic value' seen in physical commodities or cash flows. The video challenges the notion of intrinsic value itself, suggesting it's a concept more applicable to human attributes than financial assets, and highlights Bitcoin's growing strength relative to gold over the past 14 years.

Takeaways

• 🤔 The debate on whether Bitcoin has intrinsic value is often raised by gold advocates, who themselves struggle to define gold's intrinsic value beyond its industrial use.
• 📉 Gold's value is primarily a monetary premium, and if it were demonetized, its value could plummet to its industrial commodity value.
• 📈 Bitcoin's value has been strengthening relative to gold over the past 14 years, indicating a shift in perception and utility.
• 💵 The intrinsic value of a currency like the US dollar is not in the physical cost of production but in its market value and purchasing power, which has been eroding over time.
• 🏦 The value of assets like Bitcoin doesn't require government endorsement; they can serve as a store of value when traditional money fails.
• 🎨 The intrinsic value of non-financial assets like art is also subjective and based on market perception rather than any inherent material worth.
• 📊 In finance, intrinsic value is often a theoretical construct with varying interpretations, such as in the context of options or commodities production costs.
• 🧩 The concept of intrinsic value in stocks is elusive and can differ widely among investors, as seen with Warren Buffett's changing views on tech stocks.
• 💡 The speaker argues that there is no such thing as intrinsic value in a financial sense; market value is what dictates an asset's worth, which can fluctuate significantly.
• 🌐 Bitcoin's value comes from its robust global monetary network, verifiable scarcity, and utility as a permissionless digital asset.
• 🌍 Bitcoin's utility is particularly evident in countries with unstable currencies or banking systems, providing an alternative for storing and transferring value.

Q & A

What is the main argument of Matthew Cradder in the video?

Matthew Cradder argues that Bitcoin does have value, contrary to common criticisms, and challenges the notion of intrinsic value in various asset classes, including gold and fiat currencies.

What is Cradder's view on the intrinsic value of gold?

Cradder suggests that most of gold's value is attributed to its monetary premium rather than its industrial value, and that gold is in the process of being demonetized by Bitcoin.

How does Cradder address the scalability, energy usage, and transaction speed of Bitcoin?

He mentions that these topics were addressed in a previous video, implying that common objections to Bitcoin's scalability, energy usage, and transaction speed have been refuted or contextualized there.

What is the significance of the chart Cradder refers to in the video?

The chart shows the relative strength of Bitcoin to gold over time, indicating Bitcoin's increasing dominance and the potential for gold's value to decrease if it continues to be demonetized.

What does Cradder believe about the intrinsic value of fiat currencies?

He argues that the intrinsic value of fiat currencies is not in the physical cost of production but in the market's valuation relative to other currencies and real goods and services.

How does Cradder define 'intrinsic value' in the context of financial assets?

Cradder posits that there is no such thing as intrinsic value in the financial sense for assets; they only have market value, which can fluctuate significantly over time.

What is Cradder's stance on the value of digital assets like Bitcoin?

He asserts that digital assets like Bitcoin can have value due to their utility, network effects, and the ability to store and transfer value without intermediaries.

Why does Cradder believe that some people dismiss Bitcoin without understanding it?

He suggests that those who dismiss Bitcoin often do so out of ignorance or intellectual arrogance, without taking the time to understand its underlying technology and market dynamics.

How does Cradder respond to the criticism that Bitcoin has no cash flows?

He points out that many valuable assets, such as gold, art, and even tech stocks like Amazon at one point, have value without generating cash flows, and that Bitcoin's value comes from its utility and network effects.

What is the importance of network effects in the context of Bitcoin, according to Cradder?

Network effects are crucial for Bitcoin because they contribute to its value and utility. The more people who use and trust Bitcoin, the more valuable and useful it becomes, similar to social networks like Facebook.

What is Cradder's view on the role of central banks and their impact on financial stability?

He criticizes central banks for their track record of financial instability, citing hyperinflation, stock market crashes, and the erosion of purchasing power, suggesting that Bitcoin offers an alternative to this system.

Outlines

00:00

🤔 Intrinsic Value of Bitcoin vs. Gold and Fiat

Matthew Cradder from Bitcoin University addresses the question of whether Bitcoin has intrinsic value. He discusses common objections to Bitcoin, such as scalability, energy usage, transaction speed, and fees, and compares these to gold, which is often cited as having intrinsic value. Cradder challenges the notion that gold has a clear intrinsic value, arguing that much of its value comes from its function as money rather than its industrial uses. He suggests that if gold were to be demonetized, its value would plummet, and presents a chart showing Bitcoin's relative strength against gold over the past 14 years. He also touches on the intrinsic value of fiat currencies, suggesting that their value is largely based on their function as money and the trust in the issuing government.

05:01

💡 Reevaluating Intrinsic Value in Various Asset Classes

The script delves into the concept of intrinsic value across different financial assets. It questions the intrinsic value of gold, commodities, and stocks, pointing out that these values are often subjective and can fluctuate significantly. For commodities, the script notes that production costs do not necessarily equate to intrinsic value, as seen in the historical valuation of crude oil. When it comes to stocks, the intrinsic value is often a matter of debate among investors, with Warren Buffett's changing stance on tech stocks as a case in point. The paragraph emphasizes that the term 'intrinsic value' is often misused and misunderstood, and that financial assets do not possess a fixed intrinsic value but rather a market value that is subject to change.

10:01

💼 Bitcoin's Utility and Value Beyond Traditional Metrics

Cradder argues against the assertion that Bitcoin lacks value because it doesn't have 'intrinsic value' in the traditional sense. He points out that digital assets like Bitcoin can have value based on their utility and network effects, similar to social networks like Facebook and Instagram. Bitcoin, he explains, is a robust global monetary network with verifiable scarcity, which is enforced by its proof-of-work system. Its value comes from its ability to function as a unit of account and a bearer asset that can be transferred globally without the need for intermediaries. He criticizes those who dismiss Bitcoin due to a lack of understanding of its technological and economic underpinnings, and highlights the importance of Bitcoin in regions with unstable currencies or banking systems.

Keywords

💡Intrinsic Value

Intrinsic value refers to the inherent worth or utility of an item based on its fundamental characteristics, independent of market conditions or external factors. In the context of the video, the speaker challenges the notion that Bitcoin lacks intrinsic value, comparing it to the perceived intrinsic value of gold and fiat currencies. The script discusses how the intrinsic value of gold is often attributed to its industrial uses but is primarily valued for its function as money, similar to Bitcoin.

💡Bitcoin

Bitcoin is a decentralized digital currency that operates on a peer-to-peer network and uses blockchain technology to record transactions. The video addresses common criticisms of Bitcoin, particularly its perceived lack of intrinsic value. The speaker argues that Bitcoin's value comes from its utility as a global monetary network, its scarcity, and its ability to function as a store of value.

💡Gold Bugs

The term 'gold bugs' is used to describe individuals who advocate for the investment in gold as a store of value, often in contrast to other assets like Bitcoin. In the script, the speaker points out the inconsistency in gold bugs' arguments about intrinsic value, as they often fail to define or understand the intrinsic value of gold itself.

💡Demonetization

Demonetization refers to the process of a currency or asset losing its status as a recognized medium of exchange. The video discusses the historical demonetization of gold by fiat currencies and suggests that Bitcoin is currently in the process of demonetizing gold, as indicated by the fluctuating market values of both assets.

💡Fiat Currency

Fiat currency is a government-issued currency that is not backed by a physical commodity, such as gold or silver, but rather by the government that issued it. The script uses the example of the US dollar to illustrate how fiat currencies derive their value from market perception and the trust in the issuing government, rather than intrinsic value.

💡Monetary Premium

Monetary premium is the additional value an asset has when it is used as a medium of exchange, store of value, or unit of account. The video explains that a significant portion of gold's value comes from its monetary premium, which is separate from its industrial value, and this concept is also applicable to Bitcoin.

💡Proof of Work

Proof of work is a consensus mechanism used in Bitcoin's blockchain to secure transactions and create new coins. It requires miners to perform complex calculations, which deters tampering and ensures the integrity of the blockchain. The script mentions proof of work to highlight Bitcoin's security and the energy-intensive process that underpins its value.

💡Network Effects

Network effects occur when the value of a product or service increases with the number of people using it. The video compares Bitcoin's network effects to those of social media platforms like Facebook, emphasizing that Bitcoin's value is enhanced by the growing number of users and participants in its network.

💡Scarcity

Scarcity refers to the limited availability of a resource, which can increase its value due to demand. The script discusses Bitcoin's scarcity as a key factor in its value, with a maximum supply of 21 million coins, which is enforced by the Bitcoin protocol and contributes to its appeal as a store of value.

💡Utility Value

Utility value is the value of a good or service based on its usefulness or the satisfaction it provides to the user. The video argues that Bitcoin has utility value because it enables digital transactions without the need for intermediaries like banks or governments, providing a form of financial sovereignty.

💡Bearer Assets

Bearer assets are financial instruments that are owned by the person who holds the physical certificate or, in the case of Bitcoin, the private keys. The script points out that Bitcoin is a bearer asset, similar to physical gold, and this characteristic allows for the transfer of value without the need for a third party.

Highlights

Matthew Cradder from Bitcoin University addresses the question of whether Bitcoin has intrinsic value.

Critiques of Bitcoin often come from gold bugs who argue for gold's intrinsic value without being able to define it.

Gold's value is largely attributed to its monetary premium rather than industrial use.

The process of gold being demonetized by Bitcoin is illustrated through a chart showing Bitcoin's strength relative to gold.

Intrinsic value of fiat currencies like the US dollar is not based on the cost of printing but on market value and purchasing power.

Central banks' issuance of money that loses value over time is a key driver of the US dollar's devaluation.

Assets like rare comic books and beanie babies can serve as monetary stores of value without government endorsement.

The intrinsic value of fine art investments is not measurable but is subject to market value fluctuations.

Options trading uses a different definition of intrinsic value related to how much in the money an option is.

Commodity intrinsic value is not fixed and can change with production costs and market demand.

The intrinsic value of stocks as discussed by value investors is often inconsistent and unreliable.

Critics of Bitcoin's lack of intrinsic value often fail to understand or define what intrinsic value means for other assets.

Bitcoin has had monetary value since its early days, as evidenced by the purchase of two pizzas for 10,000 Bitcoin.

Bitcoin's network effects, similar to social networks, contribute to its value.

Bearer assets like gold and art have value without cash flows, and Bitcoin is no different.

Bitcoin's utility value is evident in countries with unstable banking systems or fiat currency crises.

Central bankers' track record of financial stability is poor, highlighting the need for alternatives like Bitcoin.

Bitcoin's recognition as a global brand contributes to its value and appeal.

The video concludes by challenging the notion that Bitcoin has no value, arguing against intellectual arrogance and ignorance.

Transcripts

this is Matthew cradder from Bitcoin

University and today I wanted to answer

the question does Bitcoin have intrinsic

value this is a follow-up to yesterday's

video in which I addressed many of the

major objections or fud to bitcoin

including Bitcoin scalability it's

energy usage it's speed the price of

Bitcoin and the price of its transaction

fee so you can definitely watch that

video first if you want and I will link

to it in the description notes below you

hear it very commonly that Bitcoin has

no intrinsic value this is usually a

statement that's made by gold bugs in my

experience as an argument why you should

own gold instead of Bitcoin but there's

a problem with this because those same

gold bugs don't seem to be able to even

tell you the intrinsic value of gold

itself is the intrinsic value of gold

its industrial value for example demand

caused by Gold's use in electronics

Gold's use as a catalyst in various

industrial processes if so that's

actually a pretty poor argument for why

you should own gold instead of something

else because ninety percent of of Gold's

value can actually be attributed to its

monetary premium its usage as money

rather than as an industrial commodity

the only reason that gold trades above

its industrial commodity value these

days is because lots of people in the

world still treated as fulfilling some

of the functions of money like store

value and if gold is Ever demonetized by

Bitcoin or something else its price will

fall 90 percent all else being equal

down to its industrial value with

perhaps some small artistic or jewelry

premium thrown in and this is not just a

theoretical argument gold has been in

the process of being demonetized by

Bitcoin for the past 14 years if you

know gold bug you should show them this

chart and ask them if they feel lucky as

this chart goes down that means that

Bitcoin is strengthening relative to

Gold if the chart goes up that means

that gold as well is strengthening

relative to bitcoin and we can see that

it's been ugly

ugly

ugly ugly and this is one reason that

gold bugs really don't understand

Bitcoin and don't like Bitcoin because

they're in the process of being

demonetized so when you ask what's the

intrinsic value of Bitcoin or what's the

intrinsic value of gold it's interesting

to apply the same question to different

asset classes to currencies to Fiat

currencies what's the intrinsic value of

a US dollar for example printing a one

dollar bill costs about five cents

printing a hundred dollar bill costs

about 15 cents but knowing the intrinsic

value of the paper that these currencies

are printed on doesn't really tell you

much what matters is what the market

values it at relative to other Fiat

currencies in terms of currency exchange

rates and also most most importantly

relative to real goods and services so

when I was a kid a dollar used to buy

you two Big Macs today if you're lucky

it buys you a fifth of a Big Mac and

this is because Central Bankers are

really good at issuing money that loses

value over time the US dollar drives

much of its current value in other words

it's premium it's monetary premium over

the cost of the paper that it's printed

on or the electric City that's used to

transmit it digitally digitally the US

dollar drives much of its current value

above that its monetary premium from the

U.S war machine in other words proof of

War versus something that like bitcoin's

proof of work US dollar also drives much

of its current value from men with guns

who will put you into a metal box if you

don't pay your annual extortion money

also call taxes using U.S dollars if

you're enjoying this video so far I just

ask you to help to support this channel

by clicking the Subscribe button

clicking the like button and leaving a

comment here's another important point

you don't need the government's blessing

or endorsement for something to function

as a monetary store of value when the

money is bad lots of other things begin

to take on the functions of money as a

store of value some people like to store

their Savings in rare comic books some

people like to store their Savings in

beanie babies and we can't really argue

with these in the sense that they can be

fads but sometimes they do end up

storing and securing value much better

than Fiat currencies so let's ask this

question and what is the intrinsic value

of different investment classes because

this will help us to Circle back and

decide what the intrinsic value of

Bitcoin is so for example when it comes

to Fine Art Investments what's the

intrinsic value of a painting can you

crack it open or peel back the paint or

the canvas to see the intrinsic value of

course you can't paintings do not have

an intrinsic value rather they have a

market value that changes over time when

the family of Rudolph

purchased this Gogan painting or when he

purchased it it's very unlikely he paid

very much for it when he bought it from

Gogan but this turned out to be one of

the highest priced paintings I believe

the highest price painting ever sold of

210 million dollars in February of 2015.

so even the value of these things

paintings like this they obviously

display some beauty and truth but in

terms of intrinsic value some sort of

monetary value it's impossible to

measure or Define all you really have is

market value painters come and go

sometimes very famous painters are no

longer accepted a couple Generations

down the line and vice versa very

obscure paintings can become very

valuable now what are some other ways

that the term intrinsic value is used in

finance if you've studied options put

options and call options you know that

this is one definition intrinsic value

means how much in the money these

various options are that's really just a

definitional value Commodities sometimes

people refer to the production cost of a

commodity as its intrinsic value but I

don't think this makes much sense

because since producers sometimes need

to sell Commodities at a lower price

than it costs them to produce so there's

nothing really intrinsic or inside of

the commodity that gives it a certain

value for example crude oil had zero

value in the 18th century then beginning

in the late 19th century began to have

quite a bit of value as the internal

combustion engine was taking off so the

production cost and demand for

Commodities is also also constantly

moving around as well when it comes to

stocks and their intrinsic value you may

have heard Warren Buffett or other value

investors talk about the intrinsic value

of a stock but I found over the last two

decades that this is a pretty

meaningless concept for example you go

to Value investing

conference and they'll say stock XYZ

trades for twenty dollars a share but

these are all the reasons that it's

worth forty dollars a share in other

words it has an intrinsic value of forty

dollars and you can buy it for 50 cents

on the dollar as it turns out if you

follow these these sort of conferences

and these sort of predictions and models

for any length of time you begin to

realize that these investors however

smart or Rich they are may or may not

turn out to be right and different value

investors will come up with widely

different estimates of intrinsic value

for a given stock for example Warren

Buffett hated all tech stocks until

about 2015 when he came around and he

had basically missed out on most the

upside in tech stocks and so all of a

sudden something that he thought had

intrinsic value of zero he changed his

mind decided something like apple and

Amazon had an intrinsic value perhaps

higher than that the other thing that

can happen is changes in the real world

can instantly impact and change the

intrinsic value of a stock so for

example in the U.S band online poker

this really hurt a stock that was called

I believe was called Party Poker and

that stock basically went to zero as a

result of U.S regulatory pressures when

we examine these different definitions

of intrinsic value and finance and

otherwise we realized that people who

criticize Bitcoin for not having

intrinsic value usually have no idea

themselves how to define intrinsic value

and they cannot give you the intrinsic

value of any asset whenever a gold bug

on one of my comments says that Bitcoin

has no intrinsic value I always reply

what's the intrinsic value of gold they

usually reply with the industrial value

they have no no understanding of

monetary premiums or anything like this

so here's my take there's actually no

such thing as intrinsic value in the

financial sense in a very narrow

definitional sense like put options and

call options being in the money you can

call that intrinsic value that's a

little bit different than what we're

talking about here I think there's no

such thing as intrinsic value in markets

human beings can have intrinsic value by

contrast because they have very special

attributes they can create they can give

and receive love they can give thanks

they can perceive Beauty and truth and

this sort of puts them at a different

level but I don't think Financial assets

and other assets have intrinsic value

they can only have market value and that

market value can fluctuate a lot over

time when it comes to bitcoin people who

tell you that Bitcoin has no value in my

opinion are suffering from extreme

intellectual arrogance which becomes

functionally equivalent to extreme

ignorance Bitcoin has actually had

monetary value well north of zero since

at least May of 2010 when Laszlo bought

his famous two pizzas for ten thousand

Bitcoin and Bitcoin has now had a market

cap in the hundreds of billions of of

dollars for many years and so we stole

these people who want to tell you that

Bitcoin is worth zero and they seem to

think that they understand Bitcoin

better than the collective Judgment of

the global market which is usually quite

ironic because these same people usually

haven't spent more than an hour or two

studying Bitcoin and they can't tell you

a single thing about hashing or out

algorithms like shot 256 and proof of

work the difficulty adjustment how

public private key cryptography works

even the differences between a Bitcoin

miner and a Bitcoin node and so they

have these opinions that Bitcoin should

be worth zero they can't even tell you

what any of these things are saying that

Bitcoin has no intrinsic value is really

just an easy way for them to continue to

dismiss Bitcoin without having to do the

hard work of trying to understand it and

come to terms with what it might mean

for the world which actually takes some

proof of work in itself sometimes you'll

hear people say Bitcoin doesn't have any

value because it is just digital zeros

and ones they obviously don't understand

how Fiat Banks work either but by the

same logic Zuck shouldn't be a

billionaire because his products are

just zeros and ones too he basically

puts out software I hope at this point

in time most people can finally

understand that digital assets can have

value this was still debatable in the

early days of the internet the

commercial internet in the 1990s but

hopefully no longer and it's important

to understand that Facebook and

Instagram and other social networks have

value because their software allows

people to interact with each other

online in other words it has Network

effects that it benefits from I could

clone Facebook but I could not clone its

Network effects and this what is what

makes it very special and unique in the

same way that I could clone Bitcoin but

I could not recreate its own network

effects the more people who are active

on Facebook and Instagram the more

valuable those networks become likewise

Bitcoin is software but it's also a very

strong Global monetary network with

similar strong Network effects and

Bitcoin is the largest and most powerful

powerful proof of work digital asset

Bitcoin has more people running nodes

and mining Rigs and any other digital

asset ethereum gave up the race and

moved to proof of stake which basically

just recreates the Fiat system or those

who have the most money rule unlike

ethereum Bitcoin also has a global brand

that both eight-year-olds and 80 year

olds instantly recognize the response

that I usually get when I make these

points about Facebook or meta is that

their software has value because the

company has cash flows whereas Bitcoin

has no cash flows I think this is

another extreme misunderstanding for

example Amazon the company in the stock

had value for many years without

earnings or free cash flow gold has

value even without cash flows a Picasso

opinion has value even without cash

flows or paying interest or paying a

dividend the thing is Bearer assets like

physical gold and paintings never have

cash flows but you can create synthetic

cash flows by lending them out which

itself comes with its own long list of

risks but there are lots of examples of

assets with zero cash flow that still

have significant value like Bitcoin so

why exactly does Bitcoin have value if

it doesn't have intrinsic value why does

it have any value well as we said

Bitcoin is an extremely robust Global

monetary Network it's also a unit of

account a digital asset it's a digital

commodity without a corporate or

government issue which makes it very

very special it has verifiable scarcity

that is enforced the 21 million maximum

supply of Bitcoin this verifiable

scarcity is enforced by various

equilibria conditions that harness human

Greed for human good and also make sure

that people like me who run nodes are

not incentivized to upgrade to a

software that would hurt our own

Holdings of Bitcoin Bitcoin is also the

only Bearer asset in the world that can

be instantly Zapped anywhere in the

world Bitcoin allows human beings to

send value to each other digitally and

to store that value that economic value

without needing permission or help from

a gov government or from a bank or from

another financial services company and

if that's not intrinsic value it

certainly is something like utility

value Bitcoin is very useful and if you

don't think that Bitcoin has utility and

is useful it's probably because you're

already wealthy you live in a country

with a strong rule of law you have

lawyers you have accountants you've got

a private Banker you have strong

property rights and a relatively stable

banking system in other words you're

suffering from the worst kind of first

world privilege and myopia because even

very civilized places are usually only a

few steps away from Fiat breakdown and

total societal collapse we saw this

happen in Lebanon over the past few

decades and especially in the last year

or so where people were trying to rob

banks to get their own money out the

banks eventually ended up closing

permanently and then Lebanon devalued

its currency by 90 so if you live in a

place like Lebanon or Zimbabwe or turkey

or Venezuela or Argentina or Brazil you

understand why the world needs Bitcoin

if you don't think the world needs

Bitcoin not only are you probably

suffering from first world privilege

you're probably also suffering from

Stockholm syndrome and you've been

brainwashed into thinking that Central

Bankers are your friends and are there

to provide Financial stability to the

system their track record actually

Speaks For Itself by Meyer

hyperinflation the 1929 stock market

crash in the ensuing Great Depression

fed driven housing Bubbles and stock

market bubbles in the late 20th century

early 21st century constant erosion of

the US Dollars purchasing power this is

your money managed by Central bankers

and it's been a complete disaster so

when Warren Buffett says that Bitcoin is

rat poison I like to think that it is

but we know who the rats are if you

found this video helpful be sure to hit

that subscribe and like button hit the

notification Bell if you want to be

notified when I publish my next video

and let me know your questions and

comments in the comment section below

thanks a lot for watching and I'll see

you in the next video