Why can Bitcoin support a market capitalization of trillions?
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Why can Bitcoin support a market capitalization of trillions?
The only way to access the services offered by Bitcoin is to purchase the asset itself.
Navigating Web3 tides with focused insightsBy: Matt Hougan, Chief Investment Officer at Bitwise
Translation: Saoirse, Foresight News
This week, I'm setting aside my usual market commentary to share a macro-level thought about Bitcoin. I'm not concerned about the current market pullback—it strikes me as fundamentally a short-term phenomenon.
Every year, I meet with thousands of financial advisors on the topic of Bitcoin. At every presentation, I begin by answering one simple question:
Why does Bitcoin have value?
It doesn't generate profits or cash flows, and it's not even tangible! Why then does it have a market cap of $2 trillion?
Here's how I approach answering that question.
Bitcoin is a service
To me, Bitcoin should not be viewed as an "object," but rather as a "service."
The service Bitcoin provides is enabling users to store wealth digitally without relying on governments, banks, or other third parties. I prefer to reframe Bitcoin as a "service" because many people get hung up on its intangibility—
"You want me to spend $90,000 on something I can't touch?!"
But reframing it as a service resolves this confusion. And we're all already accustomed to the idea that services can have value.
Take Microsoft, for example. The services Microsoft provides include editing Word documents, working with spreadsheets, and hosting Teams video conferences. Right now, I'm writing this memo using Microsoft's services.
To use Microsoft's services, I subscribe to Microsoft 365. Every year, I pay Microsoft $99.95. That fee goes to Microsoft's team in Redmond, Washington, and the resulting profit appears on Microsoft's bottom line.
It's obvious that the value of Microsoft stock is tied to the number of people who want to use its services. All else equal, the more users who need Microsoft's services, the higher the company's value; if fewer users need them, the value declines; if no one needs them, the value drops to zero.
Bitcoin works similarly: the more users who need the service Bitcoin provides, the higher its value; if fewer users need it, its value falls; if no one needs it, its value also goes to zero.
Over the past decade, Bitcoin has risen roughly 28,000% because more and more people want to store digital wealth without intermediaries like corporations or governments—in other words, they need the service Bitcoin offers. Today, not only do funds like the Harvard Alumni Fund need this service, but so do Abu Dhabi's sovereign wealth fund, Ray Dalio, Stan Druckenmiller, state pension plans, and myself.
However, there's one key difference between Bitcoin and Microsoft: Bitcoin has no corporate entity to collect fees. You can't "subscribe" to or "rent" its service. The only way to access the service Bitcoin provides is to buy the asset itself.
In this increasingly digital era, with government debts piling up worldwide, I believe more and more people will come to need the service Bitcoin offers.
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