{"id":118244,"date":"2025-12-05T16:40:54","date_gmt":"2025-12-05T16:40:54","guid":{"rendered":"https:\/\/mycryptomania.com\/?p=118244"},"modified":"2025-12-05T16:40:54","modified_gmt":"2025-12-05T16:40:54","slug":"case-closed-bitcoins-underlying-value-explained","status":"publish","type":"post","link":"https:\/\/mycryptomania.com\/?p=118244","title":{"rendered":"Case Closed: Bitcoin\u2019s Underlying Value, Explained"},"content":{"rendered":"

A combined obituary for TradFi\u2019s (mis)understanding of bitcoin\u2019s underlying value.<\/em><\/h4>\n

This article was written <\/em>in response to a statement<\/em><\/a> made by European Central Bank President Christine Lagarde in an October 7, 2025, interview, where she claimed that bitcoin has \u201cno intrinsic\u201d or \u201cunderlying value.\u201d<\/em><\/p>\n

When Christine Lagarde says Bitcoin has no \u201cintrinsic\u201d or \u201cunderlying value,\u201d she\u2019s (likely) referring to the fact that it\u200a\u2014\u200aunlike an equity\u200a\u2014\u200adoesn\u2019t produce a cash flow<\/strong>. The classic critique that follows is that it\u2019s \u201cpurely speculative\u201d, meaning it\u2019s only worth what someone else is willing to buy it for in the\u00a0future.<\/p>\n

She further dismisses Bitcoin as a form of \u201cdigital gold\u201d and seems to suggest that physical gold is somehow different\u200a\u2014\u200apresumably because she assigns it value for its use cases beyond<\/em> its function as money (if I had to\u00a0guess).<\/p>\n

To say that Bitcoin doesn\u2019t have a cash flow<\/strong> is factually<\/em> correct\u200a\u2014\u200abut as nonsensical as saying \u201clanguage\u201d or \u201cmathematics\u201d have no cash\u00a0flow.<\/p>\n

One could, of course, counter Lagarde\u2019s statement by appealing to the subjective value proposition\u200a\u2014\u200aarguing that there\u2019s no such thing as intrinsic value, since all value is subjective, and that anything can only<\/em> ever be worth what someone else is willing to pay for it in the\u00a0future.<\/p>\n

But instead of taking that route, I\u2019ll go the roundabout (and more entertaining) way of showing why she\u2019s not only wrong, but also inconsistent by her own\u00a0logic.<\/p>\n

Let\u2019s start with gold and the idea that something supposedly has \u201cintrinsic value\u201d because it has a use case beyond<\/em> its function as money\u200a\u2014\u200ato get that out of the\u00a0way.<\/p>\n

Gold<\/h4>\n

We\u2019ll start with a forum excerpt from Satoshi themselves:<\/p>\n

The entire point of money is to be one step removed from bartering\u200a\u2014\u200ato serve as a neutral medium that communicates the underlying economic reality between supply and demand in an economy, allowing participants to make maximally informed<\/strong> decisions.<\/p>\n

For this reason, throughout history, the evolution of money has consistently trended toward what cannot be easily recreated at will. The reason is simple: it\u2019s within everyone\u2019s self-interest, and the economy as a whole (as we will see), that the money being used and accepted cannot be\u00a0diluted.<\/p>\n

If gold were assumed for a moment to be absolutely scarce and used solely as money, the price of an apple becomes a pure function of supply and demand. The price, expressed in gold, could only change if the real supply or demand for apples changed. In this setup, all market participants are maximally informed and economic reality is\u00a0upheld.<\/p>\n

Apple price = f(Apple supply, Apple\u00a0demand)<\/p>\n

If, however, gold all of a sudden gained demand for some other purpose, such as being used for jewellery, the dynamics change. The price of an apple now becomes a function not only of the supply and demand for apples, but also the jewellery demand<\/strong>, as it\u2019s causing a change in the denominator (money) itself<\/em>. The result is a less-than-ideal form of money, where economic reality is distorted and market participants are presented with compromised information.<\/p>\n

Apple price = f(Apple supply, Apple demand, Jewellery demand)<\/p>\n

Note that this is materially different from a setup where, as in the real economy, billions of participants want billions of different things while still using the same\u00a0money.<\/p>\n

Money is merely the measuring stick<\/em>, which means that the demand for bananas isn\u2019t going to affect the price of apples just because both prices are expressed in the same unit of account. What is<\/em> going to distort prices is if people start demanding the good being used as money for something other<\/em> than its monetary function.<\/p>\n

The irony here, of course, is that gold\u2019s supposed \u201cusefulness\u201d\u200a\u2014\u200abeyond money\u200a\u2014\u200aits role in jewellery or industry\u200a\u2014\u200awhich supposedly makes it an exception to the rule of having underlying value, actually makes it less<\/em> perfect as money. By having a non-monetary use, gold introduces an additional demand parameter into what\u2019s meant to be a neutral measuring stick.<\/p>\n

The ideal money, as Satoshi pointed out, would be a kind of \u201cgrey metal\u201d\u200a\u2014\u200asomething with no other purpose than being perfect money itself. That \u201cgrey metal\u201d is, of course,\u00a0Bitcoin.<\/p>\n

Let\u2019s now move on to cash flows<\/strong>\u200a\u2014\u200athe main topic of discussion whenever TradFi talks about \u201cunderlying\u201d or \u201cintrinsic\u201d value.<\/p>\n

After all, many of the same people who point out that Bitcoin doesn\u2019t have any aren\u2019t as internally conflicted as Lagarde, and extend the same judgment to gold (that it doesn\u2019t have intrinsic value)\u2014 which, at the very least, is a more consistent position.<\/p>\n

Cash flows<\/h4>\n

Last year, Meta (Facebook), Google, and Amazon reported combined cash flows of roughly $160 billion. If someone asked Lagarde whether these equities had an underlying value, she would of course say yes. Each company sits on billion-dollar assets and billion-dollar expected future cash flows that can be discounted to generate an equity valuation.<\/p>\n

Bitcoin, on the other hand, has no comparable cash flows to speak of\u200a\u2014\u200ano disagreement there.<\/p>\n

But before we go further, let\u2019s ask: Where do those cash flows actually<\/em> come from? In other words, what is the driver <\/em>of those cash flows from <\/em>Meta, Google, and\u00a0Amazon?<\/p>\n

We\u2019ve all used Facebook. It offers a global platform for people to connect, message, and share. Its revenue comes from selling ads<\/strong> on top of user attention. Why do people use Facebook? Because everyone else does. Because it offers the best experience. It\u2019s a social network<\/strong>, meaning every new user adds value to everyone\u00a0else.<\/p>\n

What about Google? Same logic. It\u2019s the world\u2019s leading search engine\u200a\u2014\u200athe front door of the internet. It also monetises through targeted advertising. Why do you use Google instead of Yahoo or Bing? Because everyone else does. The more data it gathers, the better it gets for everyone. Another network effect<\/strong> (often leading to winner-take-all outcomes).<\/p>\n

Amazon? Same principle, different domain. It\u2019s the default marketplace of the world, connecting buyers and sellers on a global scale. Amazon profits from subscriptions and logistics fees. Consumers use it because every supplier is there; suppliers use it because every consumer is there. Every new participant makes the network <\/strong>more useful. It started with books\u200a\u2014\u200anow it sells everything.<\/p>\n

Now, imagine each of these companies woke up one morning after a collective bump to the head, decided profit was overrated, and poured their fortunes into an endowment run entirely by an AI workforce\u200a\u2014\u200akeeping the networks running exactly as before, just without the monetisation.<\/p>\n

Shareholder value would immediately drop to\u00a0zero.<\/p>\n

But what about the network<\/strong>?
Would people still use Facebook, Google and Amazon? Of\u00a0course!<\/p>\n

Because the underlying value to the users<\/strong> was never the company itself\u200a\u2014\u200ait was the network<\/strong> it monetised (which they had no other way of accessing without going through that monetisation). The fact that the network now costs nothing or very little to use wouldn\u2019t make it less valuable for them, now would\u00a0it?<\/p>\n

The equity value and the network value are two different things.<\/p>\n

The Bitcoin\u00a0Company<\/h4>\n

Now, imagine another startup with a single vision: \u201cWe\u2019re going to build the best money in the\u00a0world.\u201d<\/p>\n

Its service is to launch a global network for value transfer and storage, promising a monetary asset with a fixed supply of 21 million units forever\u200a\u2014\u200ano dilution, no exceptions (pinky promise). The monetisation model: small transaction fees, 10x lower than competitors.<\/p>\n

We call it \u201cThe Bitcoin Company\u201d.<\/p>\n

Imagine it miraculously gained some early traction. Why would people continue or grow interested in using it? Well, because more and more people does. And as they do, both the equity value<\/strong> of those owning the company (as they collect fees) and the network value<\/strong> to the users would\u00a0grow.<\/p>\n

There you\u2019d have your cash\u00a0flows<\/strong>.<\/p>\n

Ironically, this <\/em>is the same \u201cbusiness model\u201d that underpins the central banking system, only they defaulted on their original promise. By positioning themselves as issuers atop the fiat monetary network, central banks and megabanks monetise it through two\u00a0layers.<\/em>At the base lies the fiat monetary network, consisting of state-backed money. Central banks monetise this layer by issuing the very units the network runs on and indirectly financing government deficits. Above them, megabanks monetise the same network through credit creation, earning profits from interest on loans, and now increasingly from stablecoins (which is like credit on top of credit<\/em>.).<\/em>Lagarde insists stablecoins are \u201cdifferent\u201d because she views them as network expanders that amplify the monetary network she controls. Just as Facebook\u2019s advertising revenue grows with its user base, the spread of stablecoins enlarges the euro monetary network, giving central banks greater room for monetary expansion.<\/em>From her perspective, this expansion of units as the network grows functions like \u201ccash flow\u201d in the business model of central banking\u200a\u2014\u200aand, in her eyes, that\u2019s what constitutes its underlying value.<\/em>The fiat monetary network stack. Stablecoins has the potential to expand the fiat monetary\u00a0network.<\/p>\n

Now imagine the same twist: <\/strong>the Bitcoin Company dissolves. No CEO. No board. No office, anymore. The equity value and the cash flows immediately go to zero, but the Bitcoin Network<\/strong> remains \u2014operations henceforth run without rulers (according to some \u201cdecentralised consensus protocol\u201d dreamt up one night by some mysterious entity called Satoshi).<\/p>\n

Ask yourself: would that make the network<\/strong> more or less valuable?<\/p>\n

To be clear\u200a\u2014\u200awe\u2019ve just removed all<\/em> counterparty risk.
No late-night CEO tweets.
No offices to raid.
No conflict of interest.
No Coldplay scandals.<\/p>\n

The network just became (1) even cheaper to use, and (2) even the tiniest worry about that pinky promise was just erased (which, to be fair, you probably should<\/em> have been pretty worried\u00a0about).<\/p>\n

So yes, from the user\u2019s perspective, the network just became more<\/em> valuable.<\/p>\n

Equity value vs Network\u00a0value<\/h4>\n

Christine Lagarde simply hasn\u2019t done the intellectual groundwork needed to understand what she\u2019s critiquing. Like so many others before her, she\u2019s mistaking equity value <\/strong>(which generates cash flows) for the network value<\/strong>\u200a\u2014\u200awithout recognising the path dependency between them: there would be no cash flows without the network in the first place\u00a0(!)<\/p>\n

The wrong question: What is the equity value <\/strong>of the company monetising the network?
The right question: What is the network\u2019s value to the\u00a0users<\/strong>?<\/p>\n

In other\u00a0words:<\/p>\n

What is the value of being able to speak with anyone in the world, for free, instantly, across borders and cultures? (Facebook)What is the value of instantly accessing the world\u2019s knowledge? (Google)What is the value of finding, comparing, and receiving any product from anywhere on Earth, delivered in a day?\u00a0(Amazon)What is the value of moving your money\u200a\u2014\u200aacross borders and across time? Perhaps even more refined, what is the value of undistorted price signals in an economy? (Bitcoin)<\/p>\n

The Bitcoin network isn\u2019t valuable despite<\/em> not being a company\u200a\u2014\u200ait\u2019s more valuable because<\/em> it\u00a0isn\u2019t.<\/p>\n

Unlike Meta, Google, or Amazon\u200a\u2014\u200awhose networks power applications and commerce \u2014the Bitcoin network provides the monetary foundation beneath them all.<\/em> Its total addressable market is every transaction on\u00a0Earth.<\/strong><\/p>\n

Now, you could try to build a straw man argument by claiming that the Bitcoin network isn\u2019t truly a monetary network, since it isn\u2019t \u201cwidely accepted\u201d by your standards. The problem with that line of reasoning is (1) it implies that nothing new could ever emerge under the sun unless the entire world agreed on it in advance (pretty unreasonable), and (2) it would, by your own logic, require you to dismiss over 90% of the world\u2019s sovereign currencies as money\u200a\u2014\u200aincluding the Canadian dollar, the Swedish krona, and the Swiss franc\u200a\u2014\u200asince Bitcoin\u2019s market capitalisation already surpasses them many times over and would likely be accepted as payment by far more people globally.<\/p>\n

The Bitcoin Network ranks 8 out of 108 fiat currencies. Source<\/a>.<\/p>\n

Returning to the initial claim, to say that Bitcoin doesn\u2019t have a cash flow<\/strong> is factually<\/em> correct\u200a\u2014\u200abut as nonsensical as saying \u201clanguage\u201d or \u201cmathematics\u201d have no cash flow. True enough, not in themselves\u200a\u2014\u200abut they\u2019re indispensable tools for creating everything<\/em> that\u00a0does.<\/p>\n

In fact, if the money you\u2019re using did<\/em> offer cash flows (an interest rate yield), that would be a sign you were dealing with defective money.<\/p>\n

Let me explain why in the simplest\u00a0terms:<\/strong><\/p>\n

Suppose the total money supply is $100,000, and ten depositors each place $10,000 into a bank. The bank offers them 4% interest and lends out the full amount to borrowers at 5%. After a year, the borrowers owe $105,000 in total (principal plus<\/em> interest).<\/p>\n

Do you see the\u00a0problem?<\/p>\n

The borrowers owe more money than exists<\/strong> in the entire system. Where does the extra $5000 come\u00a0from?<\/p>\n

No amount of productivity or hard work can solve this mathematical impossibility. The only thing that can is the creation of new money to fill the gap. For the system to keep running, the money supply would have to grow at par with, or faster than, the interest rate being offered to depositors. It\u2019s the only way the math can work out. <\/strong>That means the supposed \u201ccash flow\u201d being offered in the form of an interest rate is being paid for by diluting the very money it\u2019s denominated in, which is the very definition of a Ponzi scheme\u00a0(!)<\/p>\n

The result is a lesser form of money\u200a\u2014\u200aone that must constantly lose value for the math to work\u00a0out.<\/p>\n

It would now appear we\u2019re at a paradoxical intersection:<\/strong> on one hand, Lagarde and others dismiss Bitcoin\u2019s underlying value on the grounds that it has no cash flow; on the other, we can now see that if<\/em> it did have a cash flow, it would by definition be flawed\u00a0money.<\/p>\n

It therefore seems that the very trait that makes Bitcoin perfect money\u200a\u2014\u200aits inability to conjure fake cash flows out of thin air\u200a\u2014\u200ais precisely<\/em> what\u2019s being used to dismiss it by those defending a system that only<\/em> functions by doing exactly that. So how do we work this\u00a0out?<\/p>\n

Here lies the crucial insight that Lagarde, and many others, fail to grasp: something can possess underlying or intrinsic value in a roundabout way<\/strong>.<\/p>\n

The roundabout way<\/h4>\n

Take car insurance (or any other insurance policy, for that matter). Judged in isolation, it has a negative expected value\u200a<\/strong>\u2014\u200ayou pay premiums every month, and it\u2019s structurally priced so that you\u2019ll never get rich buying infinite insurance policies (if that were possible, everyone\u00a0would).<\/p>\n

But when you combine<\/em> the policy with the car you own and depend on\u200a\u2014\u200athe picture changes. You\u2019ve now removed the risk of potential ruin. Evaluated together, you now have a situation where the insurance policy explodes in value (generating a positive cash flow) precisely<\/em> when you need it most\u200a\u2014\u200awhen the car breaks down. Viewed as a whole, you end up with a positive geometric return<\/strong> (that is, underlying value through the omission of ruin) when the accident eventually occurs, which, odds are, it eventually will.<\/p>\n

Cash flow\/usefulness of an insurance policy.<\/p>\n

To illustrate this more practically, consider a scenario where a person depends on their car to get to work. Without insurance, a breakdown might mean they can\u2019t afford the repair, resulting in the loss of both the car and their income. With insurance, however, the repair is covered, allowing them to maintain their income stream. In this way, the insurance policy has value far beyond<\/em> its direct payoff, as it preserves the ability to keep generating cash\u00a0flow.<\/p>\n

Y axis = Cash flow from\u00a0income.<\/p>\n

This, as we shall now understand, is the entire logic behind money <\/em>in the first place\u200a\u2014\u200aand we could just as easily swap the insurance policy for a stack of cash (which is really<\/em> just a more universal, unspecific form of insurance). You save money not because it generates a cash flow, but because it gives you future optionality and explodes in usefulness when you need it most, allowing you to quickly recover and adapt when the unexpected occurs.<\/p>\n

This is not speculative behavior. <\/strong>The reason you hold money is not because you\u2019re engaging in what critics accuse you of\u200a\u2014\u200athe \u201cgreater fool\u201d prediction business, but precisely<\/em> because you want to avoid it! You hold money not because you\u2019re making a prediction of the future, but because you know<\/em> you can\u2019t, and therefore want to be ready for whatever it brings. After all, why would you pay for car insurance if you knew<\/em> you would never need\u00a0it?<\/p>\n

The \u201cgreater fool\u201d argument collapses under closer scrutiny because it assumes every individual faces the same circumstances, preferences, and time horizons. It treats the economy as a zero-sum game in which one person\u2019s prudence must come at another\u2019s expense. But reality is the opposite: what\u2019s rational for each participant depends on their unique position in time and\u00a0space.<\/p>\n

Someone sitting on a vast reserve of cash might rationally choose to exchange part of it for a new car with a better A\/C that improve their comfort and quality of life. Someone else, with less savings or living in a colder climate, might rationally do the precise opposite\u200a\u2014\u200adefer a new car purchase and strengthen their savings buffer. Both are acting rationally within their own context. The latter isn\u2019t a \u201cgreater fool\u201d for buying the money the former is selling for a car. They\u2019re both winners! Otherwise they wouldn\u2019t agree to the trade in the first\u00a0place!<\/p>\n

Markets exist precisely because we don\u2019t<\/em> share the same circumstances or needs. The value of money, then, isn\u2019t born from finding a \u201cgreater fool\u201d, but from coordinating billions of rational actors, each seeking to balance their own lives in their own\u00a0way.<\/p>\n

We can extend this observation to all the networks and protocols mentioned earlier. Whether it\u2019s a monetary network, a social network, mathematics, or language\u200a\u2014\u200aeach derives its value in a roundabout way that continues to fly over the heads of people like Lagarde, whose job ironically is supposed to be an expert on these\u00a0things.<\/p>\n

Case Closed: Bitcoin\u2019s Underlying Value, Explained<\/a> was originally published in Coinmonks<\/a> on Medium, where people are continuing the conversation by highlighting and responding to this story.<\/p>","protected":false},"excerpt":{"rendered":"

A combined obituary for TradFi\u2019s (mis)understanding of bitcoin\u2019s underlying value. This article was written in response to a statement made by European Central Bank President Christine Lagarde in an October 7, 2025, interview, where she claimed that bitcoin has \u201cno intrinsic\u201d or \u201cunderlying value.\u201d When Christine Lagarde says Bitcoin has no \u201cintrinsic\u201d or \u201cunderlying value,\u201d […]<\/p>\n","protected":false},"author":0,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[],"class_list":["post-118244","post","type-post","status-publish","format-standard","hentry","category-interesting"],"_links":{"self":[{"href":"https:\/\/mycryptomania.com\/index.php?rest_route=\/wp\/v2\/posts\/118244"}],"collection":[{"href":"https:\/\/mycryptomania.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mycryptomania.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/mycryptomania.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=118244"}],"version-history":[{"count":0,"href":"https:\/\/mycryptomania.com\/index.php?rest_route=\/wp\/v2\/posts\/118244\/revisions"}],"wp:attachment":[{"href":"https:\/\/mycryptomania.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=118244"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mycryptomania.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=118244"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mycryptomania.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=118244"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}