Price is the true indicator of Bitcoin success[Column]| coindesk JAPAN | Coindesk Japan

The efficient market hypothesis, which assumes that market prices reflect all information, is controversial.

Many investment advisors say the market is efficient and you just need to own the market. In other words, instead of choosing individual stocks, I recommend diversified investments or passive funds (funds that aim to track stock or bond indices). Many investment advisors believe that the price of an asset reflects its value and therefore the price is correct.

Others think the market is inefficient. They tend to think that all employee retirement accounts lock in participants with no choice but a mix of stocks and bonds. They point out different areas within the market. For example, the energy sector in 2022 is a perfect example. Currently, the energy sector accounts for a very small proportion of the large indices. Market inefficiencies say that asset prices are often inaccurate and do not reflect their true value.

But the prevailing opinion is that the market isn’t perfectly efficient, but it’s getting closer every year.

So why can’t many investment professionals see Bitcoin in a similar market efficiency perspective?

They claim Bitcoin is a scam or a bubble. However, Bitcoin’s market value has risen steadily since 2019, making it the best-performing asset for many years.

It’s time for experts to ask themselves why.

price = truth

Experts calling Bitcoin a scam while advocating market efficiency are self-contradictory.

If stock prices are a good indicator of value under the efficient market hypothesis, the same should be true for Bitcoin.

If you believe in market efficiency, then prices are true. The longer an asset’s value is maintained or grows, the stronger the evidence of its value. It is irrelevant whether some or all market participants agree.

Bitcoin price reflects the demand for a stable global free currency. The market operates 24/7 and all market participants have the same information about how Bitcoin works.

Anyone can see the all-time high mining hash rate, the number of daily active addresses, and the 24-hour trading volume on the chain. All these data describe a clear pattern. In other words, it has continued to grow steadily for 14 years.

Will Bitcoin fluctuate wildly in the short term?

That’s true, but in terms of ROI (return on investment) and CAGR (compound annual growth rate), bitcoin has a huge advantage over other assets.

In the long run, if the market deems something worthless, it will either settle at the agreed price or have zero value. This often happens in the cryptocurrency market. Recent examples include FTT and LUNA. Let’s not forget the companies that have gone down in history as big losers, like pet.com, which went bankrupt in the dot-com bubble.

Many investment experts have also repeatedly made the mistake of arguing that bitcoin is young and cannot be proven to hold its price for a long period of time.

However, as of the end of 2022, the Bitcoin blockchain has been trading longer than the S&P 500. Bitcoin has a trading time of 110,224 hours, while the S&P 500 has 107,217 hours.

Some would argue that the S&P 500 has been around since 1959 and has history. However, I would argue that most of that history was before the Internet, and that the world has changed since the advent of the Internet. Additionally, Bitcoin has become a more robust and unrestricted market without relying on third parties or using circuit breakers.

The Lie of Intrinsic Value

There is one thing that the Bitcoin price does not reflect. It’s intrinsic value. Many experts will bring up this point.

But what I want to ask is, what is intrinsic value?

There is no such thing. Value is always subjective based on individual needs at the time. Demand drives everything. It has always been so.

The idea of ​​intrinsic value is futile. Whether a Rolls-Royce is worth more than a bottle of water is a subjective question that depends on where you are and what you need. In the desert, the demand for water will be higher than the demand for Rolls Royce. This is an extreme example, but demand drives value. It doesn’t change over time.

Another reason to dismiss the intrinsic value argument is that Bitcoin is base money. It is a pure currency asset that is not backed by anything. An asset should be backed by “something else” only if it lacks the qualities that seem most important.

In his book 3 Reasons I’m Investing in Bitcoin, investment research service provider Lyn Alden writes, “There is no industrial use, but[Bitcoin is]rare, durable, portable, divisible, verifiable, storable, fungible, sellable, recognized across borders, and possesses the properties of a currency. “Like “cryptic” currency, it needs sustained demand to remain valuable.”

Self-growing from zero value to global currency is one of the greatest achievements of any technology. Bitcoin price reflects demand and adoption. Nothing more, nothing less. We live in the age of Bitcoin monetization, and the road is bumpy and far from straight.

In his book The Bullish Case for Bitcoin, former Google engineer and bitcoiner Vijay Boyapati writes, “Among people alive today, No one has ever witnessed the real-time monetization of things (as it happens), so this path of monetization is a rare experience.”

the only wrong choice

Most investment professionals still wouldn’t see the need to include bitcoin in their portfolios. Don’t see the forest for the trees.

America is probably the country least in need of a better currency. As former French President de Gaulle put it in 1965, with the dollar as the world’s reserve currency, the United States enjoys an “exorbitant privilege” and is less affected by bad money. It’s been done.

But for most investors, Bitcoin’s investment results are asymmetrical, failing doesn’t hurt, and hopefully it’s a lifeboat to sustain your lifestyle. Proper allocation of investments will be critical in the next decade.

Many investment professionals are too egoistic to recommend Bitcoin until there is full consensus. But by then the asymmetry will be gone.

But bitcoin holdings are never bad. The only wrong choice you can make in 2023 is not to invest in Bitcoin at all.

What Does the Bitcoin Price Say Now? Now is the time to do your own research before the next halving arrives and everyone goes crazy over the Bitcoin price hitting the $100,000 mark.

｜Translation and editing: Akiko Yamaguchi, Takayuki Masuda
｜Image: Shutterstock
｜Original: Price, Not Intrinsic Value, Is the True Measure of Bitcoin’s Success