This is a guest post submitted on CryptoTapas by Joey Bertschler
Like the U.S. dollar, Bitcoin is backed by nothing.
To keep up with demand, societies reduced the amount of precious metal in coins until they deteriorated in real value to nothing — other than a piece of paper with a promise attached.
Given inflation, one could argue that the U.S. dollar has been going to zero ever since it was invented ($1 in 1862 → $25.36 in 2019).
The Bitcoin experiment has been a roller-coaster for many. From market manipulation to hacks, and the now long-awaited second “alt coin season,” the price has gone from virtually nothing to Lambos and back. With the fall of ICO’s, and new regulations in jurisdictions across the globe, security tokens seem to be set as the next big thing in digital investments. But where does this leave Bitcoin?
But one is ought to be cautious when using the word “never”.
Cointelegraph: “Many will compare Bitcoin to a company or stock, which can go to zero, as a reason not to invest in it. However, Bitcoin is decentralized and autonomous. There is not one man, group or board of directors that can run it into the ground.”
bitcointalk.org user: “If bitcoin returns to zero, I’m not afraid because I believe it will come back again.”
ccn: “With such a high percentage of coins parked in various wallets and places, a number of cataclysmic events would have to conspire for the price to ever actually reach $0.”
Let’s take a look at a few cases of “never” in finance we had in the past:
However, can bitcoin be compared to conventional currencies, stocks, or even companies? Bitcoin is decentralized and autonomous. That much is known to the general public and even to most completely outside of crypto and finance by now.
What most people seem to focus on is market psychology and sentiment because that is more relevant when it comes to trading.
When bitcoin spiked at around $20,000 it was not because bitcoin underwent some sort of update or anything like that to increase its value. It was simply hype forming a bubble. Like all bubbles, they are not sustainable. People still traded, knowingly, to make a quick buck.
And while elements like retracement tools, often used by day traders, made it look like there was some math behind it — most trading was, and still is, at best based on an educated guess.
Back to the fundamentals.
Does bitcoin have intrinsic value? In traditional markets, the idea behind intrinsic value is that any asset traded on an open market, over time it will eventually trend towards its average (regression to the mean).
Real Money: “As a trader, I am a slave to price action. If I think I have some sort of edge I’m willing to trade an asset even if I think it has no real intrinsic value.
With a framework consisting of several assumptions, one may argue bitcoin to have intrinsic value as a medium of exchange and storage of value.
Investopedia: “It seems possible that bitcoin could eventually increase in price by orders of magnitude, but it all depends on bitcoin’s level of adoption. The most important question is “Will people use bitcoin?”
The equation of exchange — not for bitcoin
Bitcoin is a true currency in the sense that its value is based on trust and trust alone. It depends on the faith of the people. Without a government to back it, it relies on the sentiment of the masses.
What about the calculation of how much it costs to produce a single bitcoin?
(Cost of electricity and equipment based on the proof of work — floor value)
Also no. This logic comes from commodities where we try to estimate the floor value to produce a barrel of oil or a ounce of gold. However, bitcoin lacks industrial use-cases. It transfers value — and that is it.
Why it is so difficult
Bitcoin arguments often end in circular logic.
“What gives Bitcoin its value, is its ability to transfer value.”
“Bitcoin is valuable because people trust in it”
The most realistic way bitcoin could turn “0” (not literally, there would always be some collector value) is for the entire cryptocurrency space to fall apart. Not a very likely scenario.
The “Next Altcoin Season Won’t Be Until 2020,” bitcoin keeps swinging, the SEC deems virtually all utility tokens securities excluding Ether, and Security Token projects and offerings are on the rise because of it. Bitcoin will stay afloat and in the spotlight — at least for now.
Thank you for reading the article.
Author: Joey Bertschler (Vice President)
Joey Bertschler balances multiple high-level roles across the Security Token Alliance, bitgrit and Cosmology.
Joey Bertschler is the Vice President of the Security Token Alliance, the world’s largest think tank for the Security Token industry with over 70 partners, Advisor to the World Data Science Forum, and Brand Manager at bitgrit and Cosmology Inc. He has reached audiences of over 1 million on social media channels and is involved in a plethora of marketing campaigns in APAC and CE.
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