🙃 The Intrinsic Value Myth
FIRE BTC Issue #22 - A common critique of bitcoin, refuted
The price of bitcoin is down about 25% from its all-time high of $109k, so the haters are out in full force. Like clockwork.
A frequent criticism directed at bitcoin is that it lacks intrinsic value. This argument is often proclaimed with confidence and a touch of arrogance by bitcoin skeptics, as if declaring it a fact definitively settles the debate about bitcoin’s relevance. With no intrinsic value, they assert, bitcoin must naturally be worthless — end of discussion!
Here’s a recent example:
The “Dividend Bros” who criticize bitcoin annoy me a bit more than others, because they prefer to be less wealthy for the sake of income. I wrote about that here, if you’d like to check it out. To each his own, I guess, but I just don’t get it.
Regardless, I thought it would be fun to address this criticism directly, because it’s common among the FIRE community as well.
💎 What is intrinsic value?
According to the Oxford Dictionary, the word “intrinsic” means “belonging naturally, essential”. So the term “intrinsic value” must mean that the value of an asset is somehow a part of its essential nature.
Investopedia defines intrinsic value as
“…a measure of what an asset is worth that is arrived at by means of an objective calculation or complex financial model, rather than using the currently trading market price of that asset.”
This definition implies that there is some value inherent to a particular asset that can be objectively discovered in the world, like identifying that water is made of two parts hydrogen and one part oxygen. Again, the value of an asset is treated as a property of that asset — something definitional to it.
Reading further on this Investopedia page immediately reveals a contradiction.
There is no universal standard for calculating the intrinsic value of a company or stock. Financial analysts attempt to determine an asset's intrinsic value by using fundamental and technical analyses to gauge its actual financial performance.
Huh? I thought you said intrinsic value is “objective”, but now there’s “no universal standard”? What gives?
A common approach used by financial analysts and investors to determine the intrinsic value of an asset is a discounted cash flow (DCF) analysis. Basically, they’re trying to figure out what an asset is worth today compared to where they can buy it in the market based on the cash flows generated by that asset. While this “works” at a certain point in time, you can hardly say that whatever number you calculate is somehow inherent to the asset you’re valuing.
Merely the fact that the market is trading at a different price for that asset proves prima facie that the DCF valuation is not inherent to the asset itself.
Some assets do not kick off cash flows, and yet the market still values them. Why?
Gold bugs are typically loud about the lack of intrinsic value found in bitcoin. Of course, gold is used in jewelry and electronics, among other goods, and bitcoin is used for nothing at all in the real world. And yet gold’s market value exceeds its industrial use value many times over.
Real estate investors argue their preferred asset has intrinsic value since it can serve as a home or a location to conduct business. People need a roof over their heads, right? And yet the exact same house or building will sell for a much larger amount in New York City or by the beach than if it sits in a cul-de-sac in an Oklahoma neighborhood.
When people say “intrinsic value”, what they really mean is “utility.” A stock is tied to a business with cash flow that provides the utility of an income stream. Gold provides the utility of wearing precious jewelry and enabling computation. Real estate provides housing for people or perhaps a place to vacation.
While all of this is true, each individual’s perspective of an asset’s worth and utility to them is different.
🧠 All value is subjective
It’s all in our heads.
The worth of any object, service, or asset isn’t inherent in the thing itself but is instead determined by the perceptions, preferences, and needs of individuals. As Austrian economist Carl Menger put it:
“Value is a judgment economizing men make about the importance of the goods at their disposal for the maintenance of their lives and well-being. Hence value does not exist outside the consciousness of men.”
Value doesn’t reside in the physical or tangible properties of an item — like the gold in a coin or the silicon in a computer — but in the human mind. For example, a glass of water might be priceless to someone dying of thirst in a desert, but virtually worthless to someone with easy access to clean water. The water’s intrinsic properties don’t change, but its value shifts dramatically based on context and individual need. Similarly, a painting by a renowned artist might fetch millions at auction, not because of the cost of the canvas or paint, but because people perceive it as beautiful, historically significant, or a status symbol.
This doesn’t mean value is arbitrary or meaningless. It’s deeply tied to human psychology, culture, and economic behavior. Individuals assign importance based on utility, scarcity, cultural significance, or emotional attachment. That importance translates to a value we place on particular things. Of course, this applies just as much to gold, real estate, and stocks as it does to water when you’re thirsty or art in a gallery.
When we think about the value of financial assets, it’s all speculation. Every asset, whether stocks, real estate, gold, or bitcoin, derives its value primarily from what individuals believe it will be worth in the future. This belief or perception of future worth shapes demand today, driving prices upward or downward based on collective expectations. Because these expectations are subject to change based on economic news, political events, technological innovation, and human psychology, the value of financial assets remains inherently speculative and fluid.
⚖️ Valuing bitcoin
Hopefully it’s clear at this point that
Nothing has “intrinsic value”, at least not the way most people use the term.
Individuals value assets differently and subjectively, based on their perceptions and priorities.
Buying, selling, or holding any asset is a speculation about the future.
Bitcoin is valued in the same way as stocks, gold, and real estate. There is nothing intrinsic about any of it. People look at these assets and decide how much they are worth to them based on the utility and return they expect to gain from owning them.
The utility that bitcoin provides is becoming more clear to more people over time, and they are electing to buy and hold it.
An absolutely fixed supply, unchangeable by governments, banks, or other powerful interests, means your share of the pie cannot be debased.
Its digital nature and self-clearing capabilities means it can be transferred anywhere in the world at any time for very little relative cost.
Holding private keys to bitcoin means unilateral, sovereign control of your wealth without counterparty risk.
Shifting the conversation toward utility rather than intrinsic value immediately reveals the incoherence of critics who rely on this argument against bitcoin. If value depends on the utility an asset provides to individuals, and this utility is clearly evident, it follows logically that bitcoin would hold substantial worth for many people. And that’s exactly what we see in the market.
Bitcoin is valued in the market at multiple trillions of dollars today and will increase by trillions more as additional people discover its utility for themselves.
Its price will continue to wax and wane along with marginal shifts in understanding of what it is, how it works, and the utility it brings. But there’s nothing “intrinsic” about this process, for bitcoin or for any other asset.
That’s it for this week. Thanks for reading!
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Until next time,
Trey ✌️