VanEck: A case for Investment in the Potentials of Bitcoin

VanEck - cfamedia

VanEck an investment management firm discussed why the Bitcoin is worth your investment.

Bitcoin as a Potential Store of Value
  • Understanding the differences between monetary and intrinsic value
  • Bitcoin’s combination of durability, scarcity, privacy, and its nature a bearer asset all contribute to it holding monetary value
  • Bitcoin is on the path to becoming digital gold
  • So why don’t institutional investors own bitcoin?
Bitcoin and Monetary Theory

To determine if Bitcoin has value, it is important to start with understanding the two types of value

  • Intrinsic Value (IV): Value that exists because an economic good produces cashflow or has overt utility: equities, fixed income, real estate, and consumable commodities (corn, oil, etc).
  • Monetary Value (MV): Value that exists in spite of an economic good not having intrinsic value or value that exists in excess of an economic good’s intrinsic value

Monetary Value

Nothing ever “backs” MV: MV is inherently a bet that an object will retain value or increase in value in the future. Items with MV are items that store value and can be seen as claims on future IV.

This may make people uncomfortable but it has been true since the dawn of civilization.

MV arises because of collective belief: Behavioral economics, heard behavior, etc. Humans have long needed a way to store value outside of IV. Money is a natural consequence of a productive

Monetary value needn’t relate to any sovereign power: historically, most objects of monetary value have no relationship to sovereign power – gold, gemstones, etc.

The creation of a new object with monetary value is rare, but not unheard of.

Artwork is a good example. Artwork as MV is a phenomenon of the past few centuries. Artwork did not have MV in early societies.

MV usually arises from special needs or circumstances:

  • Gold acquired MV because it was scarce, durable and relatively easy to make into coins, bars, etc.
  • Bitcoin has MV because it is scarce (which is spectacularly unique in a digital world), durable, has strong privacy characteristics (i.e. it is pseudonymous), is a bearer asset that can be memorized (making it especially useful in authoritarian regimes)
Monetary Theory

The generation of MV does not require that an object be attached to a payment system;

  • Artwork is not used for payments but its value is entirely MV
  • Gold was used in the past for payments but nowadays only on a very limited basis
  • Bitcoin is not a terrific payment system but certainly better than artwork and gold

The more people that come to accept than an object has MV, the more likely it is to have MV in the future

Volatility is an inherent consequence of the process of an object acquiring MV;

  • When gold first acquired MV there was plenty of disagreement about how many goats you could get for an ounce of gold

Currency is a sub-type of money. Money is a sub-type of items with MV;

  • USD is a currency: usable for transactions on a regular basis
  • Gold coins are money: usable on a very limited basis for transactions but not as easily as a currency
  • Artwork is an object with MV. Not readily usable for transactions but plenty of MV nonetheless
  • Bitcoin is not quite a currency but most certainly is money, however, it may become a currency
Bitcoin has the potential of becoming “Digital gold”

Featured Image: bitcoinmagazine

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