Jamie Dimon, Let Me Tell You About Bitcoin's Intrinsic Value

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Jamie Dimon, CEO JPMorgan Chase had something to say about bitcoin again. He has been a long time skeptic of bitcoin and cryptocurrencies, had nothing good to say about them. This time he says bitcoin has no intrinsic value. You may have heard this kind of sentiment many time, I have. I have heard people saying that bitcoin is created out of nothing, out of thin air, and has no intrinsic value whatsoever.

Speaking about bitcoin Jamie Dimon says:

It’s got no intrinsic value, and regulators are going to regulate the hell out of it.
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If find this statement, especially "no intrinsic value" part very disingenuous coming from somebody who has been in a leading role in the banking and finance industry. If what he says is correct then by the same logic we can conclude that JPMorgan Chase has no intrinsic value? Except for some reason $JPM market cap is $500 billion.

Maybe Jamie sees bitcoin as a competition, and has conflict of interest to say anything truthful about it? But at the same time it would be unethical for an executive officer of a publicly traded company to say something that they know is not true, especially about financial instruments or assets.

But what if Jamie is honest with his statements about bitcoin and truly believes it has nothing good to offer and has no intrinsic value. In that case, in my opinion, he would have to be a hypocrite. Because JPMorgan Chase offers six cryptocurrency investment funds to its clients.

Let me attempt to offer an explanation that bitcoin indeed has an intrinsic value. Topic of intrinsic value is not an easy one. Because it has to do with identifying and/or assigning objective value of something. And it is not an exact science. Just ask yourself what is the intrinsic value of anything? Usually we default to what value market assign to things. But some say that is not always the true value. Hence, we need to figure out the intrinsic value.

Intrinsic value is a measure of what an asset is worth. This measure is arrived at by means of an objective calculation or complex financial model, rather than using the currently trading market price of that asset.
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So yes, it is mainly used in the trading markets. Sounds like something these bankers came up with. Question is what measure are we going to use. Not all measures and models are the same. For example how do you calculate the intrinsic value of a stock or a company? Some models would considers company's assets, liabilities, revenue, profits, etc. But a lot of them would fail in calculating the networks, and network effects. Even models to calculate network values are different.

Let's start with an easy and the most obvious example. Calculating intrinsic value is done everyday for stock options. Options are traded in the markets just like other financial instruments. We can easily determine what the intrinsic value of a stock option is based on the price of the underlying stock.

Let's say I buy call option for Apple stock. It is a $140 Call option that expires in Dec 17. I paid $7 for each options contract. This gives me a right to buy Apple stocks at $140, anytime before Dec 17, 2021. Right now current market price of the stock is $145. So if I can buy at $140 and sell at $145, I can make $5 profit. But I paid $7 for this privilege, and I end up losing $2. This option has an intrinsic value of $5. The rest of its value is either time value of volatility value.

The points I am trying to make with this example are:

  1. Intrinsic value usually has to do with the underlying assets.
  2. The value of the underlying assets is usually determined by the market.
  3. Intrinsic value is not fixed and increases or decreases in value based on the value of the underlying asset.

Bitcoin crypto coins underlying asset is its network. Its intrinsic value comes from the value of its network. As network grows, participating increases and there is more demand to use the network wether as a store of value, transfer of value, building businesses & apps, etc, the intrinsic value of bitcoin as a network continues to grow as well.

JPMorgan Chase is also a network, a centralized network. It is a network of banking, investing, and financial services. Its $500 market cap is based on the intrinsic value that is derived from its network. Physical assets, cash balance, revenue, proprietary technologies they have also have intrinsic value. But they all depend on its network.

Imagine, the US and other governments decided to ban JPMorgan Chase activities or federal reserve excludes them from their network, what would happen with JPMorgan. It would lose its network. Its building would be valued much lower than what they would be while they are an operational network. These bank buildings have no use for other purposes. They need to be demolished and something new would have to be built.

Its experts and technology would lose value to. Experts would leave, since they are not being paid anymore. Technology would be cheaper since they have no option but to sell. Does Jamie Dimon understand that what JPMorgan built is a network.

Unlike JPMorgan Chase, Bitcoin is a decentralized network. This is one its true powers. It is still a network, but better. Governments can attempt to ban, but really can't. They may slow down the adoption of the network by scare tactics like Jamie Dimon has been doing, but can't shut down the network.

Perhaps, Jamie doesn't like that fact that people do not have to ask for his or his companies permission to conduct financial transaction with each other. That people can enjoy to store and use their properties as they chose, instead of needing to ask for Chase to help. That anybody can join the network and become miners if they choose to and become operators of the network without asking Chase or central banks for license to do so.

Networks are the greatest assets government, people, and companies can have. That's why Amazon, Apple, Google, Facebook, and other are successful. Because they were able to build their networks and dominate the markets. But these too are centralized networks. Alternative decentralized networks are here, and being build by people on voluntary basis.

Being decentralized is the only one aspect of the Bitcoin network. One other features are carefully studied and analyzed, one can no doubt conclude bitcoin indeed has an intrinsic value, which will continue growing as more and more people, businesses, and other entities start taking advantage of this innovation.

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