Busting Myths #1 – “Bitcoin has no intrinsic value”

by | May 5, 2022

In the first instalment of our Busting Myths series; Gabriel Carey of Cadre Capital Partners and Ryan McMillin of Merkle Tree Capital discuss and debunk the myth that Bitcoin has no intrinsic value.

Ryan outlines the factors that give a currency value (divisible, scarce, durable, transferrable, and fungible), and explains how they each relate to Bitcoin.


Gabriel Carey (00:05):
Thanks for taking time out to join us for our myth buster series, this time around digital currency. I have the pleasure of introducing you to Ryan McMillin of Merkle Tree Capital. We’re going to be going through a series of questions and busting some of those myths of the digital space.

Intrinsic value, I’m sure many of you have heard of it. When you start to look at the nuts and bolts, it’s about looking at the future cash flows of a business, discounting them at a certain rate to arrive at a value for a share or an asset. But when it comes to digital assets and Bitcoin, the market’s widely of the view that there is no intrinsic value. There’s no future cash flows, so how can you possibly come up with a discounted rate? As a result, Bitcoin will go to zero, along with all the digital currencies. So, Ryan, how do you respond to this question?

Ryan McMillin (00:55):
Yeah, so today all currencies have no intrinsic value, as they’re no longer backed by the gold standard. But I hear you say, “What about central banks? Surely they underpin a currency’s value.” Currently, they’re doing the opposite and debasing their currencies by quantitative easing or money printing, eroding a scarcity, which is one of the key attributes of good currency. A good currency needs to be divisible, scarce, durable, transferable, and fungible. Bitcoin is all of these things. It divides into units as small as 100 millionth, it’s scarce as the total supply is limited to 21 million, it’s durable in that it doesn’t exist in physical forms, so it can’t wear out, and Bitcoin is digital, so you can transfer it to anyone, anywhere, in seconds. And one Bitcoin is the same as any other Bitcoin.

It does serve several functions. It can be used as a payment, like currency, it can be used as a store of value as it has controlled supply, like gold or other commodities, and it derives more value and utility from developers who build on top of it and create new ways it can be used. This multifaceted aspect of Bitcoin makes it tricky to decide whether it should be treated as an asset, a currency as a payment mechanism, or an open global technology. These multiple use cases all add to its value, and it really is the network effect of more and more people using the network that gives it value.