Unlike fiat currencies such as the USD, whose prices tie to physical assets, Bitcoin does not have an underlying asset. That has attracted increasing criticism, with some regulators and investors claiming Bitcoin cannot serve as a viable currency or store of value because a physical investment does not back it. However, Bitcoin’s stellar performance and projected growth have proven such claims baseless. This cryptocurrency has confused some players in the market, with many wondering how it maintains a high value without an underlying market. The following article discusses all you need to know about Bitcoin’s value.
What is an Underlying Asset?
An underlying asset is a physical property whose value can determine the worth of a given investment. For example, the USD has the backing of the government’s reserves of precious metals such as gold. The metal is the underlying asset for the USD.
That is different from intrinsic value, describing an asset’s perceived or actual worth. People prescribe an asset’s intrinsic value based on how they perceive it. For instance, people place a high value on gold because it has unique and irreplaceable properties.
Why Bitcoin Has Intrinsic Value
Many cryptocurrencies that run on blockchains, including Bitcoin, do not have any underlying asset that could help decide their valuation. However, experts say some cryptocurrencies with a higher market cap and multiple use cases have intrinsic value.
Bitcoin is a transaction currency and a payment platform like money processors, but it also has other real-world uses. However, it is decentralized, without a single individual or entity that regulates it. Instead, Bitcoin relies on the proof-of-work mechanism to validate transactions on a consensus. Its blockchain network is immutable, meaning no one can manipulate the data.
Bitcoin is also resistant to censorship since it has no central authority, facilitating seamless money transfers and investments worldwide. Besides, Bitcoin has also found use in Decentralized Finance (De-Fi), enabling people to access loans at lower rates than traditional methods easily. Apart from the above use cases, Bitcoin also represents real-world assets or streams of income with significant profit potential.
Bitcoin has outperformed all the traditional assets, including precious metals, in the past to become an independent asset class. It is now one of the assets with the highest daily and monthly trading volumes on crypto markets worldwide.
Bitcoin’s blockchain is an innovative platform that supports the development of various tech projects and products for global consumers. For example, businesses can use it to streamline supply chain management and expedite smart contracts. Bitcoin’s unique qualities and multiple use cases give it an intrinsic value, attracting institutional investors and individuals worldwide.
Other Essential Bitcoin Economics
Bitcoin also derives value from its unique demand and supply economics. Bitcoin has a fixed market capitalization of 21 million tokens only, and miners have mined about 19 million. The creation of new coins occurs at a pre-determined rate by the Bitcoin protocol. Besides, Bitcoin’s supply is also subject to halving, making it scarcer over time.
Meanwhile, its market demand grows as mainstream institutions and individuals rush to adopt it like other open markets, and like other assets, low supply, and high demand cause higher prices. Thus, Bitcoin’s diminishing supply and growing demand allow it to attract and retain a higher purchasing power over time. Experts predict Bitcoin will experience immense growth in the future.
Overall, Bitcoin does not have an underlying asset to determine its value. However, it possesses several unique qualities and has numerous real-world applications that enable it to remain valuable over time.
