[Column] Cryptocurrency and Intrinsic Value

The intrinsic value of cryptocurrency

In connection with the sharp rise and fall of cryptocurrency prices we have seen over the past few months, various media and SNS are hotly discussing the intrinsic value of cryptocurrency.

There is a group on one axis that believes that the high price fluctuations of cryptocurrency are difficult to show if there is an intrinsic value, and another group that argues that there is an intrinsic value in the future that the rapidly evolving blockchain and decentralized finance (DeFi) will bring. .

The former group uses an intrinsic value analysis methodology that analyzes whether long-term stable operating profit can be created, estimates the size of annual revenue and growth potential, and converts it to present value. try to calculate It is argued that the intrinsic value is zero or negative because the cryptocurrency itself does not generate any revenue and has no value as a commodity, but rather the maintenance and mining costs for checking the distributed ledger and operating the network. Investing in these intrinsic values ​​is ‘speculation’. From this point of view, investing in cryptocurrency right now is ‘speculation’. However, I feel that there is a great net function hidden in this speculation.

◆Is speculation really bad?

People who usually trade in futures are called ‘speculators’. (I’m not trying to demean them!) Because you’re betting on future prices. However, companies make futures contracts to stabilize the purchase cost of highly volatile products, and airlines purchase oil futures to stabilize flight costs. In fact, these ‘speculators’ contribute greatly to providing liquidity and transparency in product distribution. Farmers in Michigan, who suffered the onion crisis of 1958, believed that speculators were slashing onion prices and convinced Congressman Gerald Ford to ban futures contracts for onions. 211.4%, which is 6 times the volatility of oil prices and 10 times the volatility of stock prices. Onion, which banned futures contracts, had a higher frequency of fluctuations in price, and the amplitude of the troughs and troughs was greater. (See: How the Stock Market Recurs, Ken Fisher)

What is value

“Hope cannot be said to exist, nor can it be said that it does not exist. It is like a road on the earth. Actually, there is not a road on the earth by nature. If there are many people who walk, it becomes a road. (Lu Xun)

Could this be the value? In my opinion, not an economist, values ​​are promises, meanings, and hopes. I don’t really know how to substitute the number ‘price’ for it. And even more so, because what’s valuable doesn’t necessarily have to be expensive.

As a criterion for judging values, I have a habit of applying Maslow’s hierarchy of needs, an American psychologist. According to his hierarchy of needs, human needs form a series of stages according to their importance. Following the stages of physiological needs, safety needs, affection and belonging needs, and esteem needs, the need for self-actualization is at the highest level. have. When one need is satisfied, another need at the next level in the hierarchy appears and seeks to satisfy it. The needs required in the previous stage are stronger than the needs to be achieved in the next stage, and only when those needs are satisfied, the needs of the next stage are transferred. Unlike other needs, self-actualization needs are a theory of growth needs, that is, meta-needs, which grow larger as they are realized. In other words, when I deal with a certain product, technology, or service, I look at what value it contributes to achieving the level of human desire. Not only material things but also virtual things are looked at with this criterion of judgment. This is also my view of the metaverse that can provide an extended experience (eXtended Reality, XR).

We form an enlarged self by the expansion of experience, empathy and relationship, and this expanded self grows further in a cyclical way by going to more expanded experience, empathy and relationship. In other words, it seems to be moving towards the realization of this expanded self. Economic means and techniques can be aligned towards the method and purpose of self-actualization, which Maslow calls the highest stage. I believe that today’s topic, blockchain and cryptocurrency, can also be good technologies and products towards this self-actualization. However, the problem is how to prevent misuse, abuse and abuse, and this will be an important area for regulation, system, and education to contribute.

The value we will create together, the way

There is a saying that ‘knowledge’ is borrowing, ‘intelligence’ is the ability to create knowledge, and ‘wisdom’ is the way to the truth. After all, isn’t the true value the same as the path that many people with wisdom make together? Can such a road be built in a snap and at once? Winners make a road by treading on the snow, but losers wait for the snow to melt. It’s from the Talmud. Winners and losers aren’t necessarily dichotomous, easily separated or permanent, but we can make a way. You can also create such a value.

I hope this country will be a winner in the cryptocurrency space as well.