Can Bitcoin Go to Zero?

in bitcoin •  15 days ago

Bitcoin has plenty of opinions on where it's going, whether it be to the moon or to zero. There's an article that caught my eye on Cointelegraph that talked about why Bitcoin couldn't go to zero. In this video, we discuss the idea of Bitcoin's intrinsic value and some of the circular logic in terms of where it gets its value from.

Part of what makes this question interesting (at least to me) is that traditionally when we talk about Bitcoin, we focus exclusively on market psychology and sentiment. However, this question is more fundamental in nature: Does Bitcoin have any intrinsic value? Theoretically if Bitcoin had no intrinsic value, it should trend to $0 over a long period of time. For the record, when I say $0, I mean "effective zero" as opposed to literal zero.

There have been numerous attempts to find the intrinsic value of Bitcoin. Probably the most popular attempt was by Chris Burniske (and Ark Invest) by applying the equation of exchange. The issue I have with this method is I don't really view Bitcoin as a currency since it doesn't fit any of the traditional characteristics of a currency, so that makes it difficult to apply the equation of exchange.

There are also many that argue the floor value of Bitcoin is based on the cost to produce a Bitcoin, similar to how we might do commodity analysis. Yet Bitcoin isn't used industrially the same way most commodities are and unlike gold (which also is rarely used industrially), it doesn't have the same length of history and psychology. If Bitcoin becomes unprofitable to mine, people will simply stop mining it and difficulty will reduce - it's not like physical commodities where you literally cannot reduce the cost of producing said commodity (without coming up with another way to extract the resource at least).

However, Bitcoin isn't like a company that can go bankrupt either. This brings us to arguably one of the oddest aspects about Bitcoin: Its value comes from its ability to transfer value. That perception of value comes from the masses - So how stable can that be over the course of, say, half a century? It's tough to say and is part of what makes Bitcoin so difficult to evaluate.

Another common argument for why Bitcoin can go to zero is that other altcoins will supplant it. Part of the issue with this argument is the fact that most of these altcoins haven't had to deal with the issue of real scale. Often any flaws in governance and security are exacerbated as a cryptocurrency (or really anything) scales, so I find it difficult to believe Bitcoin will be usurped easily for a long-time.

In my opinion, there is a slim chance Bitcoin could go to zero in the long-term (it's not happening over the next 5 years - too much has been invested for it to fade quickly at this point). The highest chance of this happening is if the cryptocurrency space as whole trends towards zero, which goes into even bigger questions such as the value of public vs. private blockchains which is a bit beyond the scope of this video (although I briefly discuss my thoughts on that towards the end of this video).

This is a deeper type of video (as you can tell) and I'd love to hear your thoughts on what you think about this in the long, long-term. Thank you for watching!

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@cryptovestor, I got a bullish 12-26EMA crossover signal two days ago and went long Bitcoin again.

But while that is happening and there is an overall somewhat more bullish tone in cryptos, the satoshi value of ETH is falling like a rock. I'm interested in any insights you may have about that.

Thanks,
Rick

I also don't believe that it is so easy for altcoins to overtake Bitcoin. If any coin harnesses a technology that is truly superior and within Bitcoin's scope of purpose, Bitcoin can just fork their code to adopt it. There is already precedent for this.

Please review ALQO, thanks

I doubt very much that bitcoin will go to zero. I think that the only way that this would happen is if the FIAT system started working for ordinary people . IMHO the popularity of crypto is a reaction to a broken FIAT system

One of the other considerations for the value of Bitcoin is the fact that it is a medium of exchange and store of value that does not require a third party and also has trust embedded into the network given that it is peer to peer. Therefore, consider the demand if the inflationary spiral of most developed economy's and respective central banks and fiat currencies occur. Would you prefer having more value store in an instrument that relies on the management of a third party that has no limits as to the amount they can determine as supply or a decentralized network that has limited supply where value is mined through consensus and transactional confirmations?

@cryptovestor, glad you're putting videos up on youtube again! Really glad you are thinking about the VALUE of bitcoin.

Stocks have a PE ratio. One of many different metrics developed to help investors determine the value of the stock.

Not sure if you ever noticed anything I've written about "confusing price and value" but your comments today indicate you are aware of how it happens.

In the long run we need crypto value metrics and I'll propose a generic term of 'PV ratio' or just PV for short. PV means Price to Value ratio, since cryptos don't have Earnings.

You mentioned Burniske employing the equation of exchange. That would be a PV-sub-ee metric. What would that be today?

Then you mentioned the cost of mining argument and poked some valid holes in it, but hey IMHO anything is better than nothing which is what we've got now. So I'll propose a PV-sub-mc (for mining cost) as potentially useful value metric. And conveniently ignore the difficulties caused by different power costs as an inconvenient detail to be resolved later. And also ignore the metric can't be applied to cryptos that can't be mined.

Thanks for shining your insight on a question near and dear to my avaricious heart.

Currently crypto investing is the wild wild west, but it won't always be so. Some useful and usable metrics will help increase the size of the crypto market.

Regards,
Rick

My current projections of a bullish 12/26 EMA cross for BTC, ETH, and LTC show BTC in 3 days, ETH in 6 days, and LTC in 12 days. Caveats of course YMMV and all attempts to predict the future are subject to change without warning. Edit note: While getting ready to pull the trigger on BTC in a couple of days I found an error in my linear projection formula. about 4 hours after my original post I corrected the estimates shown above by adding 1 day to each.

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The P/E ratio of cryptocurrencies is supposed to be NVT ratio, which also has flaws but is definitely the closest we have for relative valuation purposes. Thanks for your comment as always Rick.

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I had to google to find out what the NVT is. Thanks much for ameliorating my ignorance yet again. When I read Woo's definition with a 28 day moving average that includes 14 forward looking values it was a WTF moment. That definition is useless if you are trying to consider the NVT today!

Kalichkin's NVT using a 90 DMA is better, but any method is suspect when the real daily transaction value is a moving target that nobody can be sure about. (My caustic interpretation of Justin Chan's excellent DDI article, http://www.datadriveninvestor.com/2018/03/15/the-network-value-to-transactions-nvt-ratio-a-breakthrough-for-cryptocurrency-valuation/)

Is any exchange including NVT charting in their customer charting offerings? My gut says probably not, but I have no experience outside of gdax. Their charting offerings are by no standard impressive, AKA unimpressive by any standard.

Random thought: If NVT is a potentially valuable metric, could the Bitcoin blockchain be modified to include a REAL block transaction value value that could be summed on a daily basis to provide a REAL Daily Transaction Value value. Are you aware of anybody thinking/proposing such a thing within the Bitcoin development communities? Or is the idea too circular for consideration?
I'm taking it as a sign from the universe that you're posting videos again because I've been out of crypto for about 50+ days and getting ready to dive back in within a few days, maybe.

I just finished backtesting my rule set from 1/30/17 thru 5/16/18 using a worst entry/worst exit method after each 12/26 EMA crossover. This long only scheme produced a 467% return over that timeframe, though the last two entry/exit roundtrips returned -23% and -2% losses. I would be ecstatic to achieve even a quarter of those results in the next 18 months, so I believe I'll play this hand.

Regards,
Rick

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hey can you review ALQO? thanks

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@makesushi, I could review ALQO but nobody would care what I think and I know nothing about ALQO. I think you meant to reply to @cryptovestor and I am but a humble acolyte and part time curmudgeon. :-)

Peace,
Rick

Really good information here, I appreciate the info. Cheers!!!

All great information!! To keep a close eye on what direction the market is heading in, check out our predictions, updated daily: https://www.predictcrypto.net/predict/latest

@cryptovestor,

I had to post a second reply focused on the statement "Its value comes from its ability to transfer value."

I can't grok why that troubles you.

The value of my investments in Paypal, Visa, and Chase are based on exactly the same thing, their ability to transfer value. Bitcoin is obviously a pure play while the others above are not, but I'll argue they are more similar than different.

Superficially the statement seems to be circular logic. But when one considers the costs in time, money, and uncertainty of using various mechanisms to transfer value than it should not be too difficult to recognize that Bitcoin is obviously a better mousetrap than a wire or a check in the mail.

For now a wire's only advantage is that it is more widely available to both receiver and sender.

Regards,
Rick

Interesting points @cryptovestor.

I see steem as having intrinsic value. Am I dreaming?

I think the value will be exactly 0 or not. Literally 0. I just don't buy the collectors argument for now because Bitcoin is a network. If no one mine because it is not profitable, how could someone even buy the coin? This is why many coin disappeared... So I think that the limited case is very possible... (might take decades?)

This is important for me because if the lower bound of 0 exist, every value >0 would mean that people expect that the value could be greater than 0. I think this is wrong to think that the intrinsic value is separated from the price. But it is also wrong to think that the price reflect something clear about the expected value. If I expect the price could be 1,000,000$, .1% of the time and 0$, 99.9% it seem that if you are not risk averse, a value of 1000$ or less would be an opportunity. However, only the price is available information and not the expectation as different expectation can lead to similar prices.

Hi,@cryptovestor you post title is much good,
if bit Bitcoin Go to Zero, million of people come on the road.

Bitcoin is here to stay. Elastos (example) is not merged with the Bitcoin blockchain for no reason.

short answer: no

Great thought's as always

This topic did cross my mind a few times.
I would like to know how to calculate the value of bitcoin if say no one is willing to buy it anymore, and no one has any to sell. I mean imagine a flash crash, and say 20% of total supply is lost by people, in that scenario, what would the price be ? It can't possibly be worthless now can it ?

Most Government are interested in these blockchain technology. That alone is more of the reason the crypto space evaluation can not go to zero

"The value of Bitcoin is based on it's ability to transfer value."

So is gold.

It's not circular reasoning, it's the foundation of economics.

One case that bitcoin will go down to 0 is if it gets hacked. I know you'll tell based on some fact it's not possible to do that, but that is not true. someday someone will come up with a way or a new hardware that can do that and that will bring down bitcoin to zero.

Like being famous for being famous.

The immediate answer is no, obviously there is nothing that can make BTC go to zero right now!

But as all business mans know, every single company eventually dies, and BTC is just another case, after it reaches the full potential it will start to decline and be surpassed by new things, new technologies.

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I agree. What is there that says (other then people hatred towards bitcoin) it is at its end?

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We will see BTC revolutionizing the world whether we want it or not.... It is already too late to kill this "baby".

Will it really going to zero, or is it what the people that want it to go away want you to think it’s going to do? What is really pointing for it to go to zero? Is there real hard facts that say it’s at its end?

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Of course there's no hard facts that say it's going to have an end - There's no hard facts about anything when it comes to Bitcoin financially, only technically. None of this video has anything to do about "hatred" of Bitcoin - it's the fact that its value is actually determined by the opposite - People loving it (at least enough to assign it value). How reliable is that over the long-term? We don't know, but I have doubts after seeing a lot of things die that everyone thought would "last forever." Anyway, it's a long-term question (decades).

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True as you said before maybe five years down the road but anything can happen in that amount of time. As an example the dollar could collapse in five years no one really knows what will happen in five years.

I follow you from the start. I see that you are expert on crypto and even more on stock market. So please tell me, is this true?:


(I mean the part with the first guest and that he says)

Personally I see a future where governments are forced to accept crypto as currency at fair value. As we move down the road of legislation the fear associated with crypto will disappear in the same way we have all forgotten the founding fathers fears of dollar notes not being backed by anything. The best example of how currency will evolve is within our current fiat system having gone from gold backed to just simply digital representations of notes no longer even having a cost of production.

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