[2017-08-12] Bitcoin ‘Has No Intrinsic Value’ But Neither Does Fiat

[iamTom123]

Despite the increasing demand from institutional investors for Bitcoin, including Fidelity which oversees $2.31 trillion in assets, economists such as Howard Marks, who runs $90 bln investment firm Oaktree Capital, are not ready to embrace Bitcoin due to its lack of intrinsic value.

In essence, Marks is criticizing the absence of a fixed or intrinsic value for Bitcoin but ironically, fiat currencies also do not have intrinsic value. The only difference between Bitcoin and fiat is that the former is decentralized and cannot be manipulated by a centralized group of administrators while the latter is centralized and can be manipulated by a centralized group of administrators.

For instance, if Bitcoin’s fixed supply is fixed at a total cap of 21 mln, the supply of the US dollar in contrast is not fixed and has consistently been altered and manipulated by the Federal Reserve, using the “quantitative easing” method. Most supporters, users, traders and investors of Bitcoin are those that realize and acknowledge the potential of decentralized systems in distributing not only in the finance industry but in others as well.

Read the whole article here.

This is a very good opinion piece on the so-called intrinsic value of Bitcoin vis-a-vis the traditional fiat money we are using everyday. There are still people who are insisting that Bitcoin has no real intrinsic value and should not be considered as a real currency in the same manner that we look US Dollar to be valuable.

The argument is that if Bitcoin got nothing in terns of its intrinsic value, so does the fiat money. Right now, any government can just decide to print more paper money on demand making its supply bigger and bigger everyday. The US under the Obama administration called this money printing as 'quantitative easing' which is a nice term for such a decision which is actually promoting inflation and can result into rubbing people of their money's value.

In this debate whether Bitcoin has or don't have any intrinsic value, I know where most of us stands here.

[Slow death]

Reading this news reminded me of someone who does not like bitcoin because according to that person people should invest in gold, I think the person who said:

"Digital currencies are nothing but unfounded fad (or perhaps even a pyramid scheme), based on a willingness to ascribe value to something that has little or none beyond what people will pay for it."

Is someone who likes gold and is seeing that in the future gold being overtaken by bitcoin

[Iranus]

Actually, they're not the same.

Fiat currency is not only based on what people are paying for it.  It's also based on the supply of it at the time.  The difference between BTC and fiat is that the BTC supply only rises by a fixed amount which decreases regularly, but the fiat supply rises exponentially based on how much debt people are in to the countries' banks.
Seeing articles on the BBC and other mainstream news sites, you can see the comments claiming that people could just create more at any time.  There are actually several people who believe that and ignore that the entire purpose of the blockchain is to prevent that from happening.

[fancy2973]

Good point but they both have perceived value, and that's good enough. All the arts, stamps, etc have no intrinsic value. Only food, clothes, house etc have intrinsic value, lol.

[veleten]

Good point but they both have perceived value, and that's good enough. All the arts, stamps, etc have no intrinsic value. Only food, clothes, house etc have intrinsic value, lol.

stamps do have intrinsic value-you can use them to send letters
anything you see have as much value as people are willing to pay for it,be it cola caps or bitcoin

[Coin-Keeper]

With fiat you can simply turn on the printing presses and knock out billions at a time.  The "gold standard" we used to have (GOLD backed up ALL fiat at one point in my lifetime) is so gone now.  As this gets stretched and the printing just keeps going on the "backup"is nothing more than beliefs the Gov will honor those notes.  Bitcoin does not have a real backup either, but it is no weaker on the other hand.  Although, the reality is mathematics limits the BTC blockchain to 21 million coins.  That will always preserve the integrity of the supply in circulation.  I believe that 2K - 5K per coin will seem like pocket change in 5-10 years.  The other thing is that BTC is worldwide with no one Gov setting standards and control.  That fact could assist in its going mainstream and with exploding long term valuation.  I am a realist.  I only invest a percentage in BTC consistently, realizing that if my hopes are wrong I will still be OK financially.

[Carlton Banks]

Good point but they both have perceived value, and that's good enough. All the arts, stamps, etc have no intrinsic value. Only food, clothes, house etc have intrinsic value, lol.

It's based on the (subjective) opinion of the entity that performs the valutation, always.

Clothes are not valuable to a camel. Homes are not valuable to snails or tortoises. Food is not valuable to supernatural beings


Money is a paradox. It's all fiat really, the value of tax levied backing (aka "the protection racket") or precious metal's chemical stability is all subjectively decided as valuable by the observer.

It is useless. It's only useful purpose, as it is totally useless for any other purpose, is to be used as money. Anything that gets used for something real is useless money, because people will use the ostensible "money" for that useful real purpose instead. So the more useless some object is the better it is as money. For this reason, gold has been declining in it's usefulness as money since electricity and modern chemistry were discovered. Paper money fulfills this quality admirably; it's pretty much useless for just about anything else, really. Digital money even more so, it has only one possible purpose (at least cocaine users get one extra dubious use-case out of paper bills, lol, and no, plastic cards aren't actually digital money, smartasses! )

Bitcoin takes this to a whole other level. It takes the uselessness and fetishises it. Digital central banking money is just so unimaginative in it's uselessness, they believed they could just create a networked database of counting tokens and the job was over! How hubristic can you get, they deserve to get their asses kicked by the king of focused uselessness: cryptographic counting networks. Which is all this Bitcoin thing really is, a huge counting machine, that's really really good at counting these usefully useless nothings we call BTC.

[HauntingT-Rex]

I remember a guy who doesn't even own any bitcoin who told me "Bitcoin is nothing but a pyramid scheme that has little or none beyond what people will pay for it."

[hatshepsut93]

Money is a paradox. It's all fiat really, the value of tax levied backing (aka "the protection racket") or precious metal's chemical stability is all subjectively decided as valuable by the observer.

It is useless. It's only useful purpose, as it is totally useless for any other purpose, is to be used as money. Anything that gets used for something real is useless money, because people will use the ostensible "money" for that useful real purpose instead. So the more useless some object is the better it is as money. For this reason, gold has been declining in it's usefulness as money since electricity and modern chemistry were discovered. Paper money fulfills this quality admirably; it's pretty much useless for just about anything else, really. Digital money even more so, it has only one possible purpose (at least cocaine users get one extra dubious use-case out of paper bills, lol, and no, plastic cards aren't actually digital money, smartasses! )

Bitcoin takes this to a whole other level. It takes the uselessness and fetishises it. Digital central banking money is just so unimaginative in it's uselessness, they believed they could just create a networked database of counting tokens and the job was over! How hubristic can you get, they deserve to get their asses kicked by the king of focused uselessness: cryptographic counting networks. Which is all this Bitcoin thing really is, a huge counting machine, that's really really good at counting these usefully useless nothings we call BTC.

There is no paradox and money is not useless. Money was established to be means of exchange, and different forms of money exist for a reason. Gold is one of the few noble metals, and all other noble metals (except silver) are too scarce and too hard to refine. Paper money is much more convenient to use in real life than gold, and digital money is the money of internet. Being a very suitable mediator of exchange is an "intristic value" of money, even if it's paper or digital, and without it we simply won't have economy and civilization.

[d5000]

While I agree with most of the article, there is something that should not be forgotten: Bitcoin's extreme volatility is harming its usability as a means of exchange and, above all, as an unit of account. So for now it's less "money" than a "speculative asset". That makes the "intrinsic value" problem even worse, because the current prices we see are all based on the assumption that in the future there will be an usage of BTC as a currency. But if one day it becomes clear that Bitcoin will not hold this promise, then the value can crash any time to very low amounts.

Bitcoin basically is not usable still in the same way like fiat currencies or even gold, where the price related to real world asset is almost fixed or at least, a bit more predictable (if you have a constant but relatively stable inflation rate like e.g. in Argentina where most of the past years inflation was between 20 and 25% yearly). And that is the hard problem if Bitcoin wants to compete some day with real fiat currencies and not only with stocks.

There are possible solutions for that volatility problem, but people seem not being interested in them.

(And no, using Bitpay is not a solution for the long term.)

[LuanX3]

While I agree with most of the article, there is something that should not be forgotten: Bitcoin's extreme volatility is harming its usability as a means of exchange and, above all, as an unit of account. So for now it's less "money" than a "speculative asset". That makes the "intrinsic value" problem even worse, because the current prices we see are all based on the assumption that in the future there will be an usage of BTC as a currency. But if one day it becomes clear that Bitcoin will not hold this promise, then the value can crash any time to very low amounts.

Bitcoin basically is not usable still in the same way like fiat currencies or even gold, where the price related to real world asset is almost fixed or at least, a bit more predictable (if you have a constant but relatively stable inflation rate like e.g. in Argentina where most of the past years inflation was between 20 and 25% yearly). And that is the hard problem if Bitcoin wants to compete some day with real fiat currencies and not only with stocks.

There are possible solutions for that volatility problem, but people seem not being interested in them.

(And no, using Bitpay is not a solution for the long term.)

That is true. What happens to bitcoins now is that it is just being used as an investment vessel and not anymore what it was intended to be used in.
It is not being circulated well enough to be something that could rival fiat. people just keep on hoarding it and keeping it in their wallets. The result is
more volatility.

[Carlton Banks]

Money is a paradox. It's all fiat really, the value of tax levied backing (aka "the protection racket") or precious metal's chemical stability is all subjectively decided as valuable by the observer.

It is useless. It's only useful purpose, as it is totally useless for any other purpose, is to be used as money. Anything that gets used for something real is useless money, because people will use the ostensible "money" for that useful real purpose instead. So the more useless some object is the better it is as money. For this reason, gold has been declining in it's usefulness as money since electricity and modern chemistry were discovered. Paper money fulfills this quality admirably; it's pretty much useless for just about anything else, really. Digital money even more so, it has only one possible purpose (at least cocaine users get one extra dubious use-case out of paper bills, lol, and no, plastic cards aren't actually digital money, smartasses! )

Bitcoin takes this to a whole other level. It takes the uselessness and fetishises it. Digital central banking money is just so unimaginative in it's uselessness, they believed they could just create a networked database of counting tokens and the job was over! How hubristic can you get, they deserve to get their asses kicked by the king of focused uselessness: cryptographic counting networks. Which is all this Bitcoin thing really is, a huge counting machine, that's really really good at counting these usefully useless nothings we call BTC.

There is no paradox and money is not useless.

There is a paradox, because it's the uselessness of money goods that bestows them with good money characteristics.

i.e. ultimate uselessness confers ultimate universal value (and that's the definition of what actually money is: an imaginary universal good, the pretense of which is used to facilitate the exchange of goods with non-imaginary/objective value)

[bouren]

I remember a guy who doesn't even own any bitcoin who told me "Bitcoin is nothing but a pyramid scheme that has little or none beyond what people will pay for it."

That's where people lacks the whole idea. Under pyramid schemes, one people makes profit creating liability of profit making to other two but under bitcoin profitability comes with transfer of ownership which is like having poultry farms and growing chickens into hens and then selling them. With time being, value is added to bitcoin which is in form of demand hence raising its prices.

[HTracer]

Reading the article I felt like to rewrite part of it just to show as the same fact could have different emphasis.

  Fiat supply is manipulated, but Bitcoin is not.

In essence, cental banks are cheating with money supply. Not only Fed Reserve with quantitative easing, but ECB with LTRO dissolve fiat value, whereas Bitcoin supply is fixed. 

[Carlton Banks]

  Fiat supply is manipulated, but Bitcoin is not.

Yes, but that's not how it's defined.

"Fiat money" means that it's a monetary system created by laws passed by the government, and any attempt to use something different is enforced by law (aka violence/theft/kidnapping etc)

The fact that the supply is manipulated by the Central Bank to enrich their friends, (not just Government cronies, but more significantly, their corporate crony friends too) is just a byproduct of the fact that government system forces people to use Central Bank created money.

Bitcoin is free market money really (contrary to my earlier assertions in this thread, which played on the article's inability to correctly identify the meaning of the word "fiat"), where the aggregation of people using it in trade and exchanging it against violently dictated fiat money determines it's value, not by some tiny number of rich over-privileged traders on the FX trading exchanges.

We live in a communist system really, folks. Privatised communism, but not capitalistic. Capital doesn't determine prices in this system, a violent uber-class does.