Why Does Bitcoin Have Value?

Did you know that the island of Manhattan, whose current land value is estimated at $1.4 trillion, was first purchased for $24?

You read that right — just $24.

The long and rich history of New York City’s real estate market begins in 1609 with its first European settlement. In 1626, the Dutch purchased the island of Manhattan, then known to the Dutch as New Amsterdam, from the indigenous Lenape tribe for 60 guilders’ worth of beads and buttons — famously estimated at about $24 in modern currency.

So what did it take to drive the value of this particular commodity from a mere $24 to a whopping $1.4 trillion?

Basic Economics - Demand and supply! New York City is a group of islands — this means buildings can only be built out so far before they have to go up, and their height is also determined by feats of engineering and zoning laws. The very land of New York City limits its real estate, which makes it both scarce and consistently in demand.

This is how I look at bitcoin.

A limited supply fixed at 21 million coins.

One of the chief characteristics of Bitcoin is its limited supply. Other forms of money, including fiat currencies, can be printed at will by central banks—i.e., they have unlimited supply.

Bitcoin inventor Satoshi Nakamoto capped the number of bitcoin at 21 million, meaning there will only ever be 21 million bitcoins in existence. On average, these bitcoins are introduced to the Bitcoin supply at a fixed rate of one block every 10 minutes. In addition, the number of bitcoins released in each of these aforementioned blocks is reduced by 50% every four years. By August 2021, 18.7 million bitcoins were available, leaving roughly 2.3 million to be mined.1 The supply limitation makes Bitcoin scarce and controls inflation that might arise from an unlimited supply of the cryptocurrency.

Increasing demand fuelled by Institutional adoption, ease of access, acceptance from Governments, and overall development in the space.

Microstrategy, an analytics platform company, holds the top place for a publicly traded firm owning the most bitcoin, adding to its position time and again. Other companies that have bought bitcoin include Tesla, Voyager Digital, Square, Marathon Digital, Coinbase and Mercado Libre, among others.

With Governments easing their stance on cryptocurrencies and some even accepting it as legal tender now, trusted Companies such as Paypal and others have entered the space and made it very safe and easy for individuals to own cryptocurrencies. The number of crypto wallets has been growing exponentially.

Continuous development and innovations in the crypto world and mainstream media coverage have attracted a lot of celebrities to this world which has further driven retail participation.

But Why Does Bitcoin Have Value?

Bitcoin has value “because people think it does,” says Bryan Routledge, associate professor of finance at the Tepper School of Business at Carnegie Mellon University. “And if that sounds kind of unstable and goofy, it’s because it is.”

People believe Bitcoin will one day be worth more than it is today, which increases their demand for it, and its value continues to grow, similar to gold.

“Gold is just dirt that people decided that, OK, this dirt that is kind of shiny, it has value to people,” says Kiana Danial, author of “Cryptocurrency Investing for Dummies.” “Humans assign that value to gold, to your $100 bill. The $100 bill doesn’t itself have value. We assign that value to it.”

Similar to gold, people buy Bitcoin “not because they expect to be able to go to the store and spend it, but because they expect it to hold its value,” Galen Moore, director of data and indexes at crypto news outlet Coindesk, told NextAdvisor recently.

Credits

Investopedia.com | Medium.com - NYCREC | Time.com - NextAdvisor

Disclaimer: Investing in cryptocurrencies is highly risky and speculative, and this article is not a recommendation by the writer to invest in cryptocurrencies. Because each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Waizu Capital makes no representations or warranties as to the accuracy or timeliness of the information contained herein.