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Bitcoin’s Price Not a Good Indicator of Value or Health

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Bitcoin's Price Not a Good Indicator of Value or Health

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There is an obsession about Bitcoin’s price in the mainstream media, from reports about every single Bitcoin price fluctuation to predictions that Bitcoin’s price will go up by the tens of thousands of dollars or crash to zero in the future.

The common theme among these stories is that Bitcoin’s price is an important indicator of Bitcoin’s health and value when in reality this is untrue as these are derived from its intrinsic capabilities and integrity.

The source of intrinsic value of Bitcoin has not changed at all since it launched in 2009. No amount of price fluctuations will change Bitcoin’s protocol and usefulness. Bitcoin is the first blockchain-based currency, i.e. cryptocurrency. All transactions on the Bitcoin network are cryptographically secure and stored on a public immutable ledger, providing full transparency while at the same time making it impossible to alter the ledger with even the most powerful modern-day computers. Ultimately this makes Bitcoin transactions trustworthy, which has facilitated its spread as a medium of monetary exchange.

Although there are plenty of governments trying to regulate Bitcoin, the decentralized nature of the Bitcoin network makes it impossible to truly regulate. A complete version of Bitcoin is operating on every computer that runs full-node clients, and at any given time there are roughly 10,000 nodes in the world. Every single one of these nodes would have to be destroyed to censor Bitcoin and even then, Bitcoin could be restored if someone saved a copy of the software and blockchain.

Since Bitcoin is decentralized and no government controls it, anyone can start a Bitcoin account. This essentially provides banking for the unbanked. Many people in the world are unbankable due to bad credit histories and past criminal charges, but Bitcoin doesn’t make this discernment and anyone can use it, giving Bitcoin more value.

Bitcoin can be used to send money anywhere in the world, in any amount, instantly and securely. This represents major intrinsic value that is independent of price. Even if Bitcoin’s price were a penny like in the early days after its launch in 2010, it would still be just as usable as a currency.

BitGo co-founder Ben Davenport calculated that a cryptocurrency that transacted as much money as Visa – USD 9 trillion per year – would only have a market cap of USD 3 billion at any given time. This illustrates how the market cap of Bitcoin has little to do with how much money is flowing through it. The volume of money transfer that Bitcoin facilitates could be a good measure of Bitcoin’s health and how much it is spreading, but like Davenport found, market cap has little to do with volume.

The constant obsession over Bitcoin’s price comes from treating it as an investment tool, like a stock or a commodity, when the reality is that Bitcoin’s real value stems from its usefulness as a currency. Price is irrelevant to Bitcoin’s real value, in the same way that the price of the USD is irrelevant to its real value. Bitcoin is built to be a cryptographically secure and decentralized medium of exchange, which is what gives it value, and this hasn’t changed since the genesis block.


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