Bitcoin

Conclusion of The Value of Financial Products and Assets

Conclusion of The Value of Financial Products and Assets

Conclusion of The Value of Financial Products and Assets
Photo by João Marcelo Martins / Unsplash

Previous Parts

In the introduction of this essay series, we put forth a few questions that we aimed to tackle:

  • Are there any shared themes between the value of the traditional assets examined and bitcoin?
  • Does bitcoin hold or provide any instrumental and/or intrinsic value beyond the financial products and assets examined in this series and as a stand alone new asset?
  • Is the instrumental and/or intrinsic value of bitcoin misplaced, or does it even have any instrumental and/or intrinsic value?

For the first question, we’ve illustrated how traditional assets hold or provide some intrinsic or instrumental value. The point we reached is that those financial assets provide some value beyond their monetary attribute and trading price. In fact, we found that they have monetary value because of the intrinsic or instrumental value they provide or hold.

It is worth noting that the products and assets we’ve discussed might not be perfect or ideal in everything they aim to achieve, but they have been working well and fulfill the purpose they aim to fulfill sufficiently; that is, they fulfill the value they aim to provide. I raise this point because the goal of this comparative analysis is not to suggest that the financial assets and products discussed are perfect and ideal assets, but that they work well for the purpose they fulfill or how they are used. Additionally, there aren’t many alternatives that provide the value these assets and financial products aim to provide, at least for the economic system we live in; however, alternatives are always welcome.

As we compared those traditional assets with bitcoin, we identified that there are no common themes between most of the assets examined and bitcoin. In fact, we found that bitcoin works backwards compared to the traditional assets discussed. While its foundation aimed to fulfill a specific purpose, it has not achieved that purpose, and its value and recognition is rooted in its trading price as opposed to any instrumental value it provides or any intrinsic value it holds. It follows that due to its high trading price, bitcoin must have some valuable application economically or socially. With that logic, it is an asset in search of some real valuable use case. On the other hand, as mentioned above, the traditional assets and products discussed started by providing a valuable function or were perceived as valuable due to the inherent features they hold, and hence why they developed into financial products and asset, and why they have a trading price or financial returns attributed to them.

That said, there is one notable theme that is shared between gold and bitcoin.

While bitcoin doesn’t share inherent properties with gold, the political nature and economic ideology behind gold and bitcoin is a common theme. The narrative around bitcoin's scarcity, its codified properties, and the ideological force supporting it, potentially allows political authorities to adopt it as a valuable asset for the management of power relations and for the application of economic austerity measures. The force behind it and the “social construct” of its potential value as a scarce asset makes it a possible “political” asset similar to how gold is used as a reserve asset by governments, and especially how gold was used under the Gold Standard. That is the main theme gold shares with bitcoin.

As for the second question, in terms of intrinsic value as defined here, we illustrated how bitcoin doesn’t really hold any intrinsic value throughout this essay series. One can argue that its intrinsic value is in its codified scarcity and fixed supply, but as we illustrated, scarcity alone does not provide intrinsic value.

In terms of instrumental value, as discussed in the introduction, an asset that has instrumental value is an asset that acts as a means to achieve an end we value. We found that bitcoin initially aimed to be a payments system and then shifted gears to becoming an asset exclusively focused for capitalpreservation and accumulation. With the developments in politics, bitcoin is also potentially becoming a “power” or “political” asset.

As a payments system, it is safe to say that bitcoin doesn’t provide any real value, since it failed at doing so. As an asset focused on capital preservation and accumulation, we showed how it is vulnerable in truly providing value, and that the more accurate description would be an asset for speculation. As a “power” and “political” asset, the political force behind it is working on pushing it towards potentially becoming one, and it isn't an easy path towards success. Yet, as discussed, it is clear how bitcoin can be utilized as a “power” and “political” asset, so does that mean it has instrumental value as a “power” and “political” asset?

It is worth noting that the capital preservation or “digital capital” narrative around bitcoin goes hand in hand with the narrative around bitcoin being an asset for austerity measures and for the management of power relations and dynamics (i.e. “digital gold”). As “digital capital”, bitcoin reduced all financial assets, including gold, to their surface level, shallow attributes, and made these reductions its main valuable features. It follows that given its surface level attributes and its search for instrumental value, bitcoin can be molded to become an asset for the management of power relations and dynamics, since a case can be made around its scarcity, for example, which, as discussed, is one of the main features that allows political and institutional figures to leverage economic assets as a tool for political purposes and austerity. With that said, bitcoin, being an artificial or man made digital asset with codified rules, is potentially developing into having instrumental value for figures of authority and power. From that perspective, bitcoin has instrumental value for political figures and institutional authorities that adhere to a certain economic ideology.

If adopted by nations as a “reserve” asset, it will also benefit holders of bitcoin, be it retail or institutional, because it will validate and legitimize the asset. In that case, it might potentially become a more formidable asset for capital preservation and accumulation, but with the vulnerabilities still intact due to its nature, as discussed in Part VII and Part VIII.

The main takeaway from this essay series is that the shallow, surface-level financial features consolidated in bitcoin's code allow a narrative of value to be developed around it while ignoring the actual value that financial products and assets have provided beyond their financial returns and trading price. As mentioned above, bitcoin operates in reverse of traditional assets; starting with monetary value and trading price in search of instrumental and/or intrinsic value, while the traditional assets discussed start with instrumental and/or intrinsic value that lead to monetary value. Due to the aforementioned, bitcoin's narrative can be easily co-opted by interest groups, and its value is being socially constructed, or rather, consent around it may be manufactured. Specifically, with the narrative around bitcoin's scarcity and its monetary value and trading price, bitcoin can potentially be leveraged as an austerity asset and for the management of power dynamics and relations as was gold utilized for under the Gold Standard. With such developments, we can conclude that bitcoin has potential instrumental value for political and authoritative figures and for proponents of austerity economic policies.

Some important questions to pose then are: is bitcoin as a potential “power”, “political”, or austerity asset “good” or “bad”? Can something be justly labeled as instrumentally valuable if it benefits some at the expense of others? Can we say that there are certain things that are “good” instrumental values and others as “bad” instrumental values? Could bitcoin as a “political” or “power” asset potentially benefit the whole in aggregate? Would bitcoin actually be an effective asset for the management of power relations and for the application of austerity measures? These questions are important to think about because of what has been discussed around the social construct, or rather, manufactured consent, of the value of bitcoin and its potential use as a “power”, “political”, or austerity asset.

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