The Intrinsic value of Bitcoin shows it’s far more efficient than the Gold.
According to a recent report by JPMorgan, Bitcoin’s intrinsic value can be defined using the concept of cost of production. The cost of production in the case of Bitcoin is the mining cost. This is the approximate cost of miners who is doing this activity all over the world. The cost differ from country to country based on the ‘energy’ rates.
If that analogy is used for gold, the cost of production of gold will be more than $1000 per ounce. Since mining is a large scale business, according to laws of economics, it must come to equilibrium as a zero-sum game. It means that the cost of production must be equal to the value so that the average profitability of the industry is zero.
The demand for gold is primarily been due driven by the jewelry industry and in small amounts in the Technology industry. The other demand for gold is as a reserve currency. The Federal Reserves and Trust agencies around the world secure large amounts of gold and use it to control inflation and act as hedge currency fluctuations.
Bitcoin’s Intrinsic Value
Furthermore, the average mining cost per Bitcoin at the current rates is around $4200. It also explains why Bitcoin was trading around that level for almost two months. Despite a huge demand for Bitcoin in the recent days, the value has not been increased drastically.
Bitcoin’s Intrinsic Value Vs Market Price
Bitcoin is a growing industry, hence, the growth in the price due to positive speculation would either compel the miners to sell their Bitcoins for a higher profit or to buy more miners. Due to the high profitability, fresh entrants to the mining business is also expected which will drive the cost of miners.
The Bitcoin market is highly competitive in terms of price. That is the reason, no small players are showing much interest in mining activities. In the near future, that will extend to mining as well, while the existing miners can benefit due to the economics of scale. Since the Cost of Production must be Equal to Revenue for Equilibrium in a free market structure. Therefore, the overall average cost of mining will eventually fall to equivalence with the market price.
Economics of Marginal Cost and Revenue
JPMorgan’s intrinsic value argument suggests that speculation is driving the cost of Bitcoin beyond its economic stability into a bubble. Nevertheless, the efficiency and innovation provided by Bitcoin mining could disrupt the large scale and expensive mining business of gold if it continues to being accepted as ‘digital gold.’ In whatever way we look at this digital currency, no one can deny anymore it as a ‘bogus ponzi scheme’ of the money launderers.
compiled by
Srini