There is No Such Thing as Intrinsic Value

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https://www.valuespreadsheet.com/value-investing-blog/free-intrinsic-value-calculator-dcf

I’ve heard it argued that Bitcoin has no intrinsic value, like gold or the US dollar, and therefore it cannot last for the long-term.  “Intrinsic” is defined by dictionary.com as, “belonging naturally, essential.”  In other words, since Bitcoin is just bytes and a block chain, there is no value inherent in the computer byte.  The problem with that argument is that there is no such thing as intrinsic value.  

Value is completely subjective.  There is no way to measure it and it is definitely not intrinsic to anything.  Things have value when people want them.  Whenever a voluntary trade is made, both sides profit, otherwise the trade would not happen.  If I trade you a cookie for $1, it means that I valued your dollar more than I valued my cookie and you valued my cookie more than your dollar.  It does not mean that the cookie is worth a dollar.

There is no way to tell how much I valued the dollar, other than that I valued it more than the cookie.  I might have placed an extremely high value on that dollar.  That dollar might have saved my life. or maybe I knew it was a dollar that my grandfather once owned and so it has sentimental value to me. Maybe it was just a dollar that I knew I could trade to someone else for something I valued more than that dollar. We cannot tell how much psychological profit I gained.

Value is ordinal, not cardinal. This means we can only rank the things we value, we can not assign a number.  Let’s say I want to buy a new shirt.  I walk into a store and take a look at the rack.  I see 3 different shirts; one red, one blue, and one brown. I decide that I like the red shirt most.  In other words, the red shirt would give me more psychological profit than the blue or brown shirt.

If they all have the same price and they’re all available in my size, I’d buy the red shirt because I value it more than the other 2.  If they didn’t have my size in red, I’d buy blue.  I could tell you that I really like the red shirt and I think the blue shirt is pretty good, but I could not possibly say I value the red shirt 10 units more than the blue.  There is no way to assign a measurable value to the amount of how much more I like the red shirt compared to the blue shirt, we can only know that I value it more.

If value was measurable, there would be no profit.  Every trade would be of equal value.  I would not trade the dollar for the cookie if the cookie had an intrinsic value equal to $1.20.  I’d lose .20 on the trade and you’d gain.  We’d only ever trade if we were indifferent.  Thanks to subjective value, both parties to a trade profit.  We know this because the trade was made.

So the reason a dollar, an ounce of gold, a cookie, or a Bitcoin have any value at all is because people want them.  If there was some changes in society, like a collapse of the US government, the discovery of a new precious metal, changes in dietary attitudes, or a new altcoin, all the above mentioned objects would could have no value to anyone at all.


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