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I'm a Bitcoin skeptic, but mentioning "fundamental value" when talking about currency seems incongruous. The "fundamental value" of bitcoin is whatever people t

I'm a Bitcoin skeptic, but mentioning "fundamental value" when talking about currency seems incongruous. The "fundamental value" of bitcoin is whatever people think it's worth. Just like USD.

jes 6y ago
I agree with your example. I think the problem, though, is with the concept of value itself. To my knowledge, the value of something is necessarily a personal assessment that individuals 1) make for themselves and 2) by a process that they do not and can not fully comprehend.
- insert_coin 6y ago
  Price is what you pay but value is what you get. As Warren Buffett (I think) once said.
ur-whale 6y ago
The "fundamental value" of anything is whatever people think it's worth. I have a very hard time understanding why people can't wrap their heads around this very basic concept. It's just a restatement of the law of supply and demand.
- defen 6y ago
  Currency is a special case of this because most other things have some sort of inherent-use value independent of what someone will pay you for it. In other words, for most things, even if the most someone will pay you for it is $0, it may still be useful to you for some reason and therefore not worth giving it away for free.
- unethical_ban 6y ago
  I think there is some nuance. The fundamental value of wheat is linked to its ability to feed people. In other words, it has concrete qualitative value to human existence, with natural scarcity. BTC's scarcity is set by algorithm and BTC provides no value other than being a store for value. USD's scarcity is set by the printers and databases at the Federal Reserve, and its value is derived from the faith that the US economy and government will honor its value.
  - chordalkeyboard 6y ago
    > BTC provides no value other than being a store for value. And exchange medium.
  - ur-whale 6y ago
    Air is something that is utterly "valuable" (using your definition). Yet it is free. How's that for value? Again: you need to get back to the one thing that models all of these things properly: supply (currently akin to infinite for air) and demand (huge, for air, but finite, hence air is free). This whole notion that "I can eat it therefore it has value" is simply a corollary of the law of supply and demand. If you use the more general, more powerful paradigm, you reasoning will become crisper.
    - notahacker 6y ago
      More precisely, "I can eat it therefore it has value" is a component of the demand. "I genuinely believe that a hedge fund will be forced to pay me lot to take it off my hands" was a component of the demand for GME recently. Unfortunately this belief was not well founded, and so many buyers of GME did not realise the value expected from their purchase of GME. Of course, there is also demand for GME because it is a company with substantial assets which can plausibly return profits and pay dividends in future years, it just happens to be a lot less. The only people for whom peak price GME was worth what they thought it was worth were the people who got >$250 out of entertainment value from watching it fall. All market prices are whatever people think its worth, but individual buyers can derive much more value than that price, or make mistakes and derive much less value. I don't think that people talking about "fundamental value" have missed the fact that supply also affects price. I think they've avoided missing the fact that people valuing an asset based on predicting others will want it even more in future can be wrong. And that investors who are good at predicting assets other people might want more in future tend to look at intrinsic properties.
  - svachalek 6y ago
    The USD actually has two other major sources of value: 1. It's required to pay debts to the US government, like taxes. 2. OPEC oil is priced in dollars by an old agreement with Nixon.
legutierr 6y ago
Isn't this a tautology, though? Isn't the definition of value, "whatever people think something is worth?" It's good to be reminded that value emerges from individual decisions made by individual traders that collectively form a market. Still, there is also benefit in understanding whether there is some external objective reality that is influencing those decisions. Sometimes, value decisions are arbitrary or irrational—but over time, value decisions tend to be rational and based on underlying fundamentals of the thing in question, do they not? People who buy and sell things have the same mental capacity, after all, as the observers who are on the outside asking about the "fundamental" utility of the thing to which value is being assigned. Wouldn't the people who have something at stake in a transaction have more incentive to develop a theory of underlying value than would disinterested observers? If they do develop a theory of underlying value, wouldn't that theory guide their pricing decisions when buying and selling? And if so, how is the "fundamental value" of a thing distinct from the aggregated theories of value that buyers and sellers of that thing hold over its lifetime? Accurately assessing this "fundamental value" might not help you as a short-term trader, but it surely can improve the decision making of a long-term investor, no?
nine_k 6y ago
I could understand if the cost of electricity people have spent on mining and transactions were higher than the sum total of current value of all bitcoins mined, et the current exchange rate to, say, USD. I think it's emphatically not the case.

I'm a Bitcoin skeptic, but mentioning "fundamental value" when talking about currency seems incongruous. The "fundamental value" of bitcoin is whatever people think it's worth. Just like USD.

jes 6y ago

I agree with your example. I think the problem, though, is with the concept of value itself. To my knowledge, the value of something is necessarily a personal assessment that individuals 1) make for themselves and 2) by a process that they do not and can not fully comprehend.

insert_coin 6y ago
Price is what you pay but value is what you get. As Warren Buffett (I think) once said.

ur-whale 6y ago

The "fundamental value" of anything is whatever people think it's worth. I have a very hard time understanding why people can't wrap their heads around this very basic concept. It's just a restatement of the law of supply and demand.

defen 6y ago
Currency is a special case of this because most other things have some sort of inherent-use value independent of what someone will pay you for it. In other words, for most things, even if the most someone will pay you for it is $0, it may still be useful to you for some reason and therefore not worth giving it away for free.
unethical_ban 6y ago
I think there is some nuance. The fundamental value of wheat is linked to its ability to feed people. In other words, it has concrete qualitative value to human existence, with natural scarcity. BTC's scarcity is set by algorithm and BTC provides no value other than being a store for value. USD's scarcity is set by the printers and databases at the Federal Reserve, and its value is derived from the faith that the US economy and government will honor its value.
- chordalkeyboard 6y ago
  > BTC provides no value other than being a store for value. And exchange medium.
- ur-whale 6y ago
  Air is something that is utterly "valuable" (using your definition). Yet it is free. How's that for value? Again: you need to get back to the one thing that models all of these things properly: supply (currently akin to infinite for air) and demand (huge, for air, but finite, hence air is free). This whole notion that "I can eat it therefore it has value" is simply a corollary of the law of supply and demand. If you use the more general, more powerful paradigm, you reasoning will become crisper.
  - notahacker 6y ago
    More precisely, "I can eat it therefore it has value" is a component of the demand. "I genuinely believe that a hedge fund will be forced to pay me lot to take it off my hands" was a component of the demand for GME recently. Unfortunately this belief was not well founded, and so many buyers of GME did not realise the value expected from their purchase of GME. Of course, there is also demand for GME because it is a company with substantial assets which can plausibly return profits and pay dividends in future years, it just happens to be a lot less. The only people for whom peak price GME was worth what they thought it was worth were the people who got >$250 out of entertainment value from watching it fall. All market prices are whatever people think its worth, but individual buyers can derive much more value than that price, or make mistakes and derive much less value. I don't think that people talking about "fundamental value" have missed the fact that supply also affects price. I think they've avoided missing the fact that people valuing an asset based on predicting others will want it even more in future can be wrong. And that investors who are good at predicting assets other people might want more in future tend to look at intrinsic properties.
- svachalek 6y ago
  The USD actually has two other major sources of value: 1. It's required to pay debts to the US government, like taxes. 2. OPEC oil is priced in dollars by an old agreement with Nixon.

legutierr 6y ago

Isn't this a tautology, though? Isn't the definition of value, "whatever people think something is worth?" It's good to be reminded that value emerges from individual decisions made by individual traders that collectively form a market. Still, there is also benefit in understanding whether there is some external objective reality that is influencing those decisions. Sometimes, value decisions are arbitrary or irrational—but over time, value decisions tend to be rational and based on underlying fundamentals of the thing in question, do they not? People who buy and sell things have the same mental capacity, after all, as the observers who are on the outside asking about the "fundamental" utility of the thing to which value is being assigned. Wouldn't the people who have something at stake in a transaction have more incentive to develop a theory of underlying value than would disinterested observers? If they do develop a theory of underlying value, wouldn't that theory guide their pricing decisions when buying and selling? And if so, how is the "fundamental value" of a thing distinct from the aggregated theories of value that buyers and sellers of that thing hold over its lifetime? Accurately assessing this "fundamental value" might not help you as a short-term trader, but it surely can improve the decision making of a long-term investor, no?

nine_k 6y ago

I could understand if the cost of electricity people have spent on mining and transactions were higher than the sum total of current value of all bitcoins mined, et the current exchange rate to, say, USD. I think it's emphatically not the case.