DeFi Daily News
Sunday, August 3, 2025
Advertisement
  • Cryptocurrency
    • Bitcoin
    • Ethereum
    • Altcoins
    • DeFi-IRA
  • DeFi
    • NFT
    • Metaverse
    • Web 3
  • Finance
    • Business Finance
    • Personal Finance
  • Markets
    • Crypto Market
    • Stock Market
    • Analysis
  • Other News
    • World & US
    • Politics
    • Entertainment
    • Tech
    • Sports
    • Health
  • Videos
No Result
View All Result
DeFi Daily News
  • Cryptocurrency
    • Bitcoin
    • Ethereum
    • Altcoins
    • DeFi-IRA
  • DeFi
    • NFT
    • Metaverse
    • Web 3
  • Finance
    • Business Finance
    • Personal Finance
  • Markets
    • Crypto Market
    • Stock Market
    • Analysis
  • Other News
    • World & US
    • Politics
    • Entertainment
    • Tech
    • Sports
    • Health
  • Videos
No Result
View All Result
DeFi Daily News
No Result
View All Result
Home DeFi Web 3

rewrite this title Professor Coin: What Gives Bitcoin Its Value? – Decrypt

Andrew Urquhart by Andrew Urquhart
August 3, 2025
in Web 3
0 0
0
rewrite this title Professor Coin: What Gives Bitcoin Its Value? – Decrypt
0
SHARES
0
VIEWS
Share on FacebookShare on TwitterShare on Telegram
Listen to this article


rewrite this content using a minimum of 1000 words and keep HTML tags

In brief

Academic research points to a number of factors influencing Bitcoin’s value.
They encompass programmed scarcity, network effects, and cost of production.
Studies have also found that sentiment and belief play an outsized role in determining the value of Bitcoin.

Professor Andrew Urquhart is Professor of Finance and Financial Technology and Head of the Department of Finance at Birmingham Business School (BBS).

This is the eighth installment of the Professor Coin column, in which I bring important insights from published academic literature on cryptocurrencies to the Decrypt readership. In this article, I discuss what gives Bitcoin value.

In just over a decade, Bitcoin has gone from a niche innovation in cryptography to a globally traded asset with a market capitalization in the hundreds of billions.

Yet despite its prominence, a persistent question remains: what gives Bitcoin its value?

Bitcoin doesn’t generate cash flow like a company, isn’t backed by physical reserves like gold, and has no central authority guaranteeing its worth. So why are people willing to pay tens of thousands of dollars for a digital token? Recent academic research points to several factors.

Scarcity and Monetary Policy

The first pillar of Bitcoin’s value is its programmed scarcity. Bitcoin has a fixed supply: only 21 million coins will ever be created. This limit is enforced by the network’s consensus rules and is viewed by supporters as a bulwark against inflation.

Academic studies have likened Bitcoin to gold because of this scarcity. Pagnotta and Buraschi (2018) model Bitcoin as a decentralized network whose value stems from user adoption and security, both of which are underpinned by the incentives embedded in its monetary policy. In their equilibrium framework, scarcity plays a key role in sustaining long-term value.

Scarcity makes Bitcoin attractive as a hedge against inflation, particularly in a world of expanding money supply. A number of economists have investigated whether Bitcoin’s scarcity can explain its valuation with Kruger, Meyer, and Withagen (2022) showing the widely discussed stock-to-flow model fits historical data reasonably well, reaffirming the importance of scarcity as one component of Bitcoin’s perceived value.

Network Effects and Utility

Scarcity is not sufficient without demand—and Bitcoin’s demand comes from its use as a peer-to-peer digital asset and from the belief that others will accept it in the future.

This is where network effects come into play. According to Cong, Li, and Wang (2021) Bitcoin’s value grows with its user base. Their tokenomics model shows that the more people adopt and trust Bitcoin, the more valuable the network becomes. This dynamic helps explain why Bitcoin has survived multiple boom-and-bust cycles.

Furthermore, Bolt and van Oordt (2016) argue that the value of a virtual currency arises if users expect it to retain value and be accepted in transactions. Their model formalizes how expectations of acceptance can stabilize a volatile asset like Bitcoin.

Cost of Production and Network Security

Bitcoin is also underpinned by a real-world cost: mining. To secure the network and process transactions, Bitcoin relies on a system called proof-of-work, where miners compete to solve cryptographic puzzles using electricity and hardware.

This energy-intensive process is not without controversy, but researchers such as Hayes (2015) have shown that the cost of production provides a fundamental floor for Bitcoin’s price. He finds that Bitcoin rarely trades below the marginal cost of mining, reinforcing the idea that energy and security provision matter for valuation.

Moreover, the work of Pagnotta and Buraschi (2018) supports this by showing that mining incentives and the strength of the network’s security are central to Bitcoin’s equilibrium value, not just supply and demand in the traditional sense.

Speculation, Sentiment, and Attention

In practice, however, Bitcoin’s price also reflects investor sentiment and speculation. A surge in media coverage or social media buzz can trigger price rallies or sharp selloffs.

Studies by Urquhart (2018) and Shen et al (2019) demonstrate that Bitcoin prices are strongly correlated with online search trends and that trading volume in turn, drives investor attention.



Similarly, Liu and Tsyvinski (2021) show that cryptocurrency returns are significantly predicted by investor attention proxies. Unlike traditional assets, Bitcoin lacks ties to macroeconomic fundamentals, so sentiment and belief play an outsized role.

Macroeconomic Role and Portfolio Demand

Bitcoin’s value is also shaped by its role in the broader financial system. In a low-interest-rate environment and amid concerns about fiat currency debasement, investors have turned to Bitcoin as a non-sovereign store of value. This is demonstrated by early work by Baur et al (2018) who show that investors are holding Bitcoin for long periods, but is supported by followup work by Jahanshahloo et al (2025).

Recent research has reassessed Bitcoin’s role in portfolios, particularly in times of market stress. Corbet, Larkin, and Lucey (2020) find that Bitcoin behaves more like a speculative asset than a traditional safe haven, but it can act as a weak diversifier under certain market conditions. In a similar vein, Ji, Bouri, Lau, and Roubaud (2021) use time-varying spillover models and show that Bitcoin’s hedging properties fluctuate significantly, with greater hedging effectiveness during tranquil periods rather than during crises.

Conclusion: Value from Code, Community, and Belief

Bitcoin’s value emerges from a blend of engineering and economics: scarcity enforced by code, utility derived from decentralized consensus, and demand shaped by sentiment, costs, and macro conditions.

It behaves like a commodity, a tech stock, and a speculative token—often all at once. That complexity is what makes Bitcoin both so fascinating and so difficult to value with traditional models.

In the end, Bitcoin’s worth is anchored not in what it does today, but in what its users believe it can become tomorrow. And as long as that belief persists—backed by utility, adoption, and incentives—the value may persist too.

References

Baur, D. G., Hong, K-H., Lee, A. D. (2018). Bitcoin: Medium of exchange or speculative assets? Journal of International Financial Markets, Institutions and Money, 54, 177-189.

Bolt, W., & van Oordt, M. R. C. (2016). On the Value of Virtual Currencies. Journal of Financial Stability, 17, 81–91.

Cong, L. W., Li, Y., & Wang, N. (2021). Tokenomics: Dynamic Adoption and Valuation. Review of Financial Studies, 34(3), 1105–1155.

Corbet, S., Larkin, C., & Lucey, B. (2020). The contagion effects of the COVID-19 pandemic: Evidence from gold and cryptocurrencies. Finance Research Letters, 35, 101554.

Hayes, A. (2015). A Cost of Production Model for Bitcoin. Telematics and Informatics, 34(7), 1308–1321.

Jahanshahloo, H., Irresbeger, F., Urquhart, A. (2025). Bitcoin under the microscope. British Accounting Review, forthcoming.

Ji, Q., Bouri, E., Lau, C. K. M., & Roubaud, D. (2021). Dynamic connectedness and integration in cryptocurrency markets. International Review of Financial Analysis, 74, 101670.

Kruger, P., Meyer, C., & Withagen, P. (2022). Is Bitcoin’s Stock-to-Flow Model Valid? Finance Research Letters, 48, 102956

Liu, Y., & Tsyvinski, A. (2018). Risks and Returns of Cryptocurrency. NBER Working Paper No. 24877.

Pagnotta, E., & Buraschi, A. (2018). An Equilibrium Valuation of Bitcoin and Decentralized Network Assets. Review of Financial Studies, 31(9), 3498–3531.

Shen, D., Urquhart, A., Wang, P. (2019). Does twitter predict Bitcoin? Economics Letters, 174, 118-122.

Urquhart, A. (2018). What Causes the Attention of Bitcoin? Economics Letters, 166, 40-44.

Daily Debrief Newsletter

Start every day with the top news stories right now, plus original features, a podcast, videos and more.

and include conclusion section that’s entertaining to read. do not include the title. Add a hyperlink to this website http://defi-daily.com and label it “DeFi Daily News” for more trending news articles like this



Source link

Tags: BitcoincoinDecryptProfessorrewritetitle
ShareTweetShare
Previous Post

rewrite this title Solana Brewing Cup-And-Handle Pattern Suggests Drop To $140 – Details

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Search

No Result
View All Result
  • Trending
  • Comments
  • Latest
rewrite this title 4 Secrets from Chefs for Better Cruise Dining – NerdWallet

rewrite this title 4 Secrets from Chefs for Better Cruise Dining – NerdWallet

November 15, 2024
The Future of Blockchain: An Inside Look at Cardano

The Future of Blockchain: An Inside Look at Cardano

July 18, 2024
Top 19 crypto coins that will EXPLODE in July 2025!!

Top 19 crypto coins that will EXPLODE in July 2025!!

July 2, 2025
Spanish Police Dramatically Stop Illegal Immigrants by Cutting Their Boat in Half

Spanish Police Dramatically Stop Illegal Immigrants by Cutting Their Boat in Half

August 29, 2024
rewrite this title Ethereum Continues Losing Ground To Bitcoin With ETH/BTC Ratio at Multi-Year Lows | Bitcoinist.com

rewrite this title Ethereum Continues Losing Ground To Bitcoin With ETH/BTC Ratio at Multi-Year Lows | Bitcoinist.com

October 26, 2024
rewrite this title Visa Expands its Flexible Credential Card to the U.S. – Finovate

rewrite this title Visa Expands its Flexible Credential Card to the U.S. – Finovate

November 15, 2024
rewrite this title Professor Coin: What Gives Bitcoin Its Value? – Decrypt

rewrite this title Professor Coin: What Gives Bitcoin Its Value? – Decrypt

August 3, 2025
rewrite this title Solana Brewing Cup-And-Handle Pattern Suggests Drop To 0 – Details

rewrite this title Solana Brewing Cup-And-Handle Pattern Suggests Drop To $140 – Details

August 3, 2025
rewrite this title Courtney Stodden Celebrates 18 Days Alcohol Free And Opens Up About Healing Journey | Celebrity Insider

rewrite this title Courtney Stodden Celebrates 18 Days Alcohol Free And Opens Up About Healing Journey | Celebrity Insider

August 3, 2025
rewrite this title Newcastle and Manchester United in tug-of-war over star striker

rewrite this title Newcastle and Manchester United in tug-of-war over star striker

August 3, 2025
rewrite this title Perfect Match Season 3 Now Streaming On Netflix

rewrite this title Perfect Match Season 3 Now Streaming On Netflix

August 3, 2025
rewrite this title Canadian teen Mboko topples Gauff in Montreal

rewrite this title Canadian teen Mboko topples Gauff in Montreal

August 3, 2025
DeFi Daily

Stay updated with DeFi Daily, your trusted source for the latest news, insights, and analysis in finance and cryptocurrency. Explore breaking news, expert analysis, market data, and educational resources to navigate the world of decentralized finance.

  • About Us
  • Blogs
  • DeFi-IRA | Learn More.
  • Advertise with Us
  • Disclaimer
  • Privacy Policy
  • DMCA
  • Cookie Privacy Policy
  • Terms and Conditions
  • Contact us

Copyright © 2024 Defi Daily.
Defi Daily is not responsible for the content of external sites.

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In
No Result
View All Result
  • Cryptocurrency
    • Bitcoin
    • Ethereum
    • Altcoins
    • DeFi-IRA
  • DeFi
    • NFT
    • Metaverse
    • Web 3
  • Finance
    • Business Finance
    • Personal Finance
  • Markets
    • Crypto Market
    • Stock Market
    • Analysis
  • Other News
    • World & US
    • Politics
    • Entertainment
    • Tech
    • Sports
    • Health
  • Videos

Copyright © 2024 Defi Daily.
Defi Daily is not responsible for the content of external sites.