The other day, I listened to an annoying dialogue between Raoul Pal and Peter Schiff. “Bitcoin has no intrinsic value,” said Schiff. I was stunned. Frankly surprised about the lack of nuance and knowledge of Peter Schiff who is a prominent actor in traditional finance.
“Bitcoin has no intrinsic value,” said Schiff, arguing that gold is the commodity with top-notch intrinsic value as it’s used in creating actual physical products. He is right; between 50% and 60% is utilized for ornamental purposes like jewelry, and approximately one third of new gold is used for investment purposes.
To him, sound money should be backed by gold. That sound great, but I would like to remind Schiff that the gold standard system, connecting currency value to a fixed amount of gold, collapsed during World War 1. They needed to print money to cover the expenses of the war and did not have enough gold to back it. Yes, nations still store gold (and should store more to back paper money) but as of 2022, none of the world’s countries are currently on the gold standard.
Oh, did I mention that his company, SchiffGold, offers services to buy and sell gold… I digress.
So, what is intrinsic value?
Intrinsic value is not a fixed or immutable concept but rather a dynamic force shaped by human interaction, technological innovation, and socio-economic factors. Now let’s consider what is the prominent development in today’s world: Digitalization. There, what has intrinsic value needs to be both physical and digital. Honestly, a conversation about what possesses intrinsic value needs to be nuanced and grounded in reality. By 2024, the global number of internet users surpassed 5.35 billion, with individuals spending an average of 6 hours and 40 minutes online daily. This means that 66% of the global population is online.
Money is obviously going digital because of the socio-economic and technological developments in society. Therefore, what holds intrinsic value must also consider the digital world.
The dynamic forces of human nature must be considered when we discuss what holds value. Take fiat money (paper money) and Bitcoin. I can argue that neither possesses inherent worth in the traditional sense, yet both are imbued with value through societal trust, utility, and perception.
Hear my frustration! The intrinsic value aspect in the digital realm obviously needs to be considered as our existence is highly digital. “We are experiencing a digital revolution; our perspectives on value must change. Do you hear me, Schiff?”
Bitcoin is often compared to gold not just because it holds intrinsic value despite being immaterial, but because our financial lives are digital. We do not have to melt down different metals to create coins or things to use in trading and investments. We code.
Things hold value because they are rare, useful, long-lasting, authentic, meaningful to culture, desirable, perceived as valuable, easy to carry, can be verified, and are influenced by economic conditions. Bitcoin and some other cryptocurrencies check all these boxes and therefore hold intrinsic value.