Where Does Bitcoin Get Its Value From?

When Bitcoin was released in 2009, it had zero value on the open market. By 2010, it was trading for pennies. In 2011 Bitcoin crossed $1USD and in 2013, Bitcoin reached $1,000USD. In 2021 Bitcoin has reached $40,000USD.

Bitcoin has not stopped rising in value since the day of its release. Year after year, proponents proclaim it is the most superior form of money and critics say its a ponzi scheme based on nothing. Warren Buffet famously proclaimed that Bitcoin is like Rat Poison. Jame Dimon, CEO of JP Morgan Chase, called Bitcoin a fraud – only to later say he regrets saying that. 

Bitcoin has been declared ‘dead’ in the Media thousands of times. What did all of these people miss about the ability of Bitcoin to hold value?

First, we have to think about what makes something valuable? What makes gold valuable? The value anything has is based on its utility. Bitcoin’s utility is borderless, permissionless digital money. 

Before money existed, humans operated on the barter system. Trade happened by exchanging items. Money simplified trade, as everything could be assigned a value represented by money. 

Money used to be backed by precious metals, like gold or silver. Today’s money is based on fiat, which means nothing. Money holds value today because the government says it does. This has not worked out very well for the people, as the purchasing power of a dollar has steadily declined over the years. 

Because money today is based on fiat, which means only backed by the word of the government, holding any type of currency essentially means investing in that government. It is not uncommon for governments to devalue their currency, or to have decisions by the central banks negatively impact the value of the currency. Geopolitics is a messy game. 

This is why precious metals such as gold have always been seen as a safe haven from fiat money. The reason precious metals are seen as a safe haven is because they always have utility, and the value is protected from inflation.

Bitcoin holds all of the characteristics of money, is protected from risk of inflation, and is cryptographically secure from attack. 

Scarcity is an important concept in determining the value of something. Take gold for example – there is only so much gold available in the world. The same is true with Bitcoin, only 21 million Bitcoin will ever be created. By being scarce, Bitcoin is more valuable as a store of value.

Bitcoin also has to be mined in order for new coins to be created. The amount of total power used in the mining Bitcoins is more than the power usage of some countries. There is massive infrastructure behind Bitcoin. 

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Views and opinions expressed are solely those of the author and not of The DeChained or any affiliated party. Views or opinions expressed in this article (or any article on the website) are not financial advice. Articles are for informational purposes only. The author and The DeChained may hold positions in assets discussed in this or other articles.
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