How can Bitcoin be valued, and what is its worth? In part 1 of this panel discussion, Steve Hanke, professor of applied economics at Johns Hopkins University, Hong Fang, CEO of OKCoing, and Saifedean Ammous, author of ‘The Bitcoin Standard’, debate Bitcoin’s utility, history, and its “fundamental value.”
What is Bitcoin's utility and the value of Bitcoin. What is the price that it should be traded get while we're here to discuss these topics with three very prominent guests experts in their respective fields with various viewpoints, Dr. independent educator at dot com, who is also the author of the Bitcoin standard Hong Fang CEO of OK.
Coin and Steve hanky professor of applied economics at Johns Hopkins university. Gentlemen and lady, welcome to the show and Dr. Most it's your first time. Welcome to Kitco. Thank you so much for having this pleasant to be on. It should be. Yeah. Fun, uh, discussion about Bitcoin. I know you have all very good opinions and viewpoints on how people should perceive Bitcoin and the role that it plays for investors.
I like to start with Bitcoin's utility and its intrinsic value. Because that is a foundation of this discussion. Um huh. Ladies, first you have written an essay about this very topic and why you think Bitcoin should reach a hundred thousand dollars? Is that still your price target Hong short term? Yes.
Yes, absolutely. So when I think it's interesting when, uh, you mentioned intrinsic value. Uh, and then, uh, the, the keyword it T utility. I think those two are very important to understand when we talk about. A, uh, quote unquote, an asset class. Um, to me, the big point is a very special asset class. It's not just a asset class because when we talk about asset class in the traditional financial world, it is a asset class that it's a, it's a type of asset that generates certain cashflow or be valued in.
Uh, Fiat money. I U S dollar, any other fee money that you can speak of? The Bitcoin to me is a, is not falling into that category. It is this very special asset class that actually provide the central utility as a best that we have as a, a store of value, the best store of value that we have ever had in the human history.
Um, that that is what makes it very special. I think we talked about this previously on your show. Um, the, the reason that the queen is very special and unique and compared to gold and many others historical story of value format that we've seen historically, it is the very scarce, right? It is divisible.
It is durable, it's fungible for many other things, but the most important thing about Bitcoin is that it takes out any third party. Uh, from the creation and management of this asset and make it very censorship resistant, make it free from inflation, which has been the most, um, uh, the biggest, uh, quote unquote evil, if you will, that has plagued our financial system and our currency system historically.
So that's how I've been viewing it, uh, compared to many other asset classes out there. It's very special. You cannot think about it as a comparable to stock or a bond or whatsoever, because it's, it shouldn't be. I think of in that session, in that framework. Okay. Um, I'll let each of you make a statement and then you'll have a chance to respond to each other.
Uh, Dr. Elmo's you've talked about Bitcoin and how it relates to Austrian economics and its role for, uh, for investors and economic economists alike. Can you elaborate on this concept? Uh, you know, the foundational concept of Austrian economics is the idea that value is subjective. And I think. The term intrinsic value makes really no sense in the context of economics and the context of finance.
It's used to denote the value of the discount, the expected future cash flows of a cash asset, but that's not, uh, that that's different from how we think about value as a Nomics. Does. You know, a lot of things, don't yield cashflow and they're still valuable. And so the value of anything comes from somebody valuing it.
And that is subjective. There's no right. And answer over how much value something, where they should value something. It is entirely subjective. It's down to the person themselves. So there's, there's no economic value without even being making the valuation consciously from the scarcity of the good that they're valuing.
And so for me, Bitcoin has proven itself to have a value on the market for 12 years. And the market continues to liquid in a very liquid form. I can understand how somebody won't see value in Bitcoin for themselves, but I don't understand the idea that we can dismiss a $1 trillion. Of assets being held by people all over the world as not having value.
Well, somebody is, you know, somebody isn't holding all of the $1 trillion of Bitcoin that are out there today and they could be selling and they could be buying things and they could be buying a lot of things, 400 or a trillion dollars worth of Bitcoin, but they choose to hold the Bitcoins. So there clearly is value from it from holding a good point.
And that's that's I think what economists should be asking themselves, why. Okay. Excellent. And professor hanky, last time we spoke about Bitcoin a few weeks ago, you made the rounds of the internet by saying that I quote Bitcoin's fundamental values should be zero, and it's going to eventually death spiral down to its fundamental value.
Can you elaborate on this view? First of all, I, I did say that, uh, the fundamental value of something is. Very different from the Mark of value. The only objective value of anything is the market value and the market value is as a good Austrian. I can conclude the summation of the subjective valuations of the market participants who were engaged in buying and selling, whatever it is in the market to determine its objective.
Market price. So these are dis classifications and terminologies that are used in economics. So the market value of Bitcoin is what, 55,000 today, or something like that. Something around that. I haven't looked though the last hour or so. It moves around. What do you have there, David? Do you have it on the computer?
Yeah, something like that. It's not, it's something around 55,000. That is the market price. That is the objective value. And that is determined by subjective valuations of market participants. And that's clear enough, the fundamental value of something is, and, and at the limit, whether it's generating either utility of some sort or a free cash flow.
Uh, as a stock, we value that by looking at its free cash flow or projection of that, and that's added together by all the analysts, all dollar subjective evaluations and they're buying and selling and recommending. And ultimately you get a market price, which is the objective value. I think the reason that I think this is.
The, the fundamental value is an important to keep in mind is that there will be there's free entry into the crypto space and, and Bitcoin, I think has, uh, inferior characteristics to what could be superior cryptos. That will eventually drive it out of the marketplace. And when that happens, they, yeah, the, the supplies completely inflexible and analystic.
Uh, but that demand determines the price, the demand determines the price. And if the demand disappears because people go to superior substitutes. Then the price will go down to its fundamental value, which happens to be zero. Okay. Um, hold on. I'll let you respond to that. Uh, professor hanky made a point that Bitcoin doesn't generate any cash flow.
And so that's one of his assumptions for why the fundamental value of some of this asset is zero because it doesn't generate cashflow. Uh, do you agree with this statement? Is it true that decorum doesn't generate cash flow? Yeah, I actually want to respond to, uh, professor Hankey's point, uh, in, uh, on several aspects.
Um, professor hankie talk about fundamental value, which I actually agree with. I think when we think about a, a price of about, uh, you know, future price, uh, the quote unquote asset class, we want to think about what the utility. Of that asset. Yeah. Is it something that generate cashflow and then should be valued in, in terms of, you know, discounted cashflow or is it something that is more providing utility?
That's not driving cashflow, but certainly utility that people just want it as a result of that. The value of that should be put in the framework of a supply and demand a framework. And I think in Bitcoin's case, it is the latter, right? It's not generating cashflow. It is a supply demand play. It is the best store value so that if many people, depending on how many people actually see it as the best store value, when, when that size of the population changes the supply and demand dynamics changes that will drive the change of the.
Uh, the price. Now, what I do believe in is that when you look at Bitcoin versus all the other competitors out there as a store of value, either historically, or in Fiat world or in crypto world, there's no other asset or whatever format that you can think of that offer more superior, uh, attributes than Bitcoin.
So the second point that I, you know, intrigued me in, uh, professor Hankie's comment just now, is that he, when he mentioned. Uh, the supply and demand and acknowledged the change of supply and demand will drive the price of Bitcoin. He mentioned that there may be other assets in crypto world that may come up with more superior attributes that may drive Bitcoin out of this competition.
And I don't agree with that, at least not now. Um, I don't see any other assets. That in crypto that can actually offer more than what, what Bitcoin can offer at this point. Um, you know, there have been four acts out of Bitcoin, but those failed and when, and the other thing is when you think about, uh, uh, A store of value.
When you think about the consensus forming around that, and ultimately as a monetary network, there is a, there is a significant network effect there, you know, depending because you know, back to the professors, uh, Siva Dean, uh, uh, this comment, it is a, it's almost like a game theory. When you think about a, you know, either historically gold or silver or any other, uh, project.
Uh, commodity, uh, serving as a store of value, what Bitcoin's serving as a store of value. It depends on how you think other people will think of this as a potential lasting, durable store value. Uh, and, and there is a network effect. And the longer Bitcoin, uh, Bitcoins, uh, play out the larger that networks, uh, becomes in, in the total market cap, the harder for the competitor to come up and challenge it.
It has to be not just two times better, not just 10 times better has to be a hundred times better. Just like what Bitcoin has been doing with Fiat currency. What's gold. It is a hundred times better. Uh, it is a native internet money, uh, native store of value to the internet. That's what makes it so special.
And it takes out government, uh, central banks handed. Totally, totally like zero sec, like absolute separation of money and state. That's what makes it so special. Okay, excellent. Thank you, Dr. EMAs. I have a question for you, but before I let you, uh, before I answer, uh, sorry, before I ask you the question I'd like to give, uh, Steve and chance to just respond directly to Hahn's comments.
Well, well, uh, the, the one thing that there are a number of things that could be said, but the main thing is there are seven characteristics of, of great currencies and Bitcoin just doesn't fit the bill. If you go back. I, I studied these things, the dominant currencies for 2,500 years, there've been 14.
Great currencies. And, and the network effects are very important, obviously. Uh, the average length of life of each one of these is about 200 years. Well, Bitcoin hasn't been around long enough to say anything about it, store of value. So that assertion is kind of ridiculous on the face of it. So the one thing that we do know is that gold.
There is something called the golden constant, right? Josh drum's book is titled the golden constant. And from 1560 up until a prison, gold has been something that holds its purchasing power over long periods of time. There are variations and volatilities, but if you look at the. Ratio of wholesale prices over the price of gold price, the gold price it's about wrong.
I think stays pretty constant over hundreds of years. So, so we have a long test there. When we're talking about store of values, store of value, holding, purchasing power gold has, has in fact stood the test of time. Now, what are these seven characteristics? Well, one is the size of the transactions domain.
And the size of the transactions domain for Bitcoin is tiny. It's not used for anything. This is a pure speculative asset. It's you have to look at the greater fool theory of speculation to figure out what's going on. And that is you can buy it today. It's value is what it is. And if you think it's going higher, you buy, if you think it's going lower, you would sell a thing.
Sure. So where it's going now. No one really knows. I have no, no idea where the thing on might be exactly right. It's going to a hundred thousand per year in the short run. But the second thing that is required out of these seven characteristics, stability of monetary policy, three absence of any kind of controls for.
Strength of the issuing state, because all the great currencies have actually been issued by States and five until 1971. There was always a fallback factor. In other words, that the current, the great currency was issued, but it could be convertible usually in the gold or silver in some cases. And the sixth thing is that there's some sense of permanence.
In other words, you can price. Deferred payments or long-term contracts and what, whatever this is, it has to be a unit of account that's reliable. And as a result of that interest rates are Whoa, when denominated nominating contracts and these things. So all of these normal things that have been associated with every great currency for the last 2,500 years.
You just can't check the box on Bitcoin. It, it just doesn't have the, it is a speculative asset and you have to think in terms of, uh, a speculative asset and which the greater fool's theory is, is the name of the game. And, and you're talking about something like the SAS T bubble. Or the Mississippi bubble is 300 years ago in the 1720s that that's what's going on.
It might go a lot higher. Okay. And by the way, I I can design a superior crypto. Well, what, we're going to talk about that in just one second. Uh, Dr. Hanky, uh, your, uh, your alternative crypto, uh, Dr. let's, uh, give you a chance to respond. So I guess two questions now, first of all, uh, hall and, and professional hanky have both given their, their targets for what Bitcoin should be trading at.
What is your, what is your fundamental value of target? Uh, is there one for you, David? I don't have a target. Aye. This is a speculative asset that I have absolutely no target about, but as superior alternatives come in and they will, and Korea's very easy. Forget the networking thing. And Korea is very easy.
If you'd come up with a superior one, the demand for Bitcoin will dry up and it'll go down to almost nothing. Unless your response. Well, my question is we've already had 12 years of a supposedly superior alternative coming on, uh, and entering the market. There are thousands of digital currencies other than Bitcoin.
Not only have they failed to replace Bitcoin, they've also all right. Failed at getting to 10% of Bitcoin's liquidity size. This is, I think that there is no comparison between Bitcoin and other digital currencies in any meaningful sense that they've, they they've failed to challenge it at all. And Bitcoin has just been continuously growing for 12 years at 200%.
So the question that I have here is there, you know, there comes a point which Bitcoin is bigger than the U S dollar. There comes a point at which Bitcoin is bigger than the global bond market. If more people have money in Bitcoin, Then the bond market, you know, imagine a hundred trillion dollars being held at Bitcoin.
Currently we're at one. Trillion, but imagine it goes up another 100 fold that is probably bigger than the global bond market. Now it doesn't have to satisfy your textbook definitions of what makes a great currency, because that refers to the courtesies of governments issued in the analog world. It has to win the test of the market and you have to think about it as a market, good out there, competing for people buying it.
So if more people buy it and we end up with more people holding Bitcoin than government bonds. You know, doesn't matter if it fulfills your criteria in your textbook, it's already become a store of value, bigger than bonds. So my question to professor Hank is, you know, if it's, if it goes up to $5 million, a Bitcoin it's bigger than the bonds, would you then consider that?
Okay. Maybe it has a little bit of value itself to the $120 worth of, uh, so the people holding $170 worth of it, if it's a hundred billion dollars and that's the market value, that's what it's worth. There's no question about it. All I'm saying, and you're missing the point in these definitions. It is not a currency period.
That's the end of the story. I list that I haven't listed all 14. I'm not going to go back to the Greeks and go through every currency I was talking about. Great currencies, great international currencies that satisfy the definition of a currency. I wasn't talking about a speculative asset. And if the price goes up and the, and the value is exceeds the total value of all bonds outstanding in the world, that is the value of, of whatever Bitcoin or the crypto is.
That's. That is the objective value. That's the point value is zero. Pardon? Would you still say the fundamental value is zero. Yeah, the font, the font, unless there are some uses that ultimately show up and the thing starts being used by $100 trillion worth of Bitcoin. There's 7 billion people around the world holding $100 million worth of Bitcoin.
That sounds pretty useful to me. They must have a reason for holding it. No, it's they do. They're speculating. It's a speculative market and a spanking say that like, it's a bad word, but everything you do is I was like, it's a bad word. I think is a wonderful word. I've spent most of my career speculating in foreign exchange and commodities, equities and bonds.
So I don't need lessons on whether speculation is good or bad. . .