What Video Games Taught Me About The Value Of Bitcoin.
In a nutshell: Context is EVERYTHING.
Bitcoin has stolen the thunder from all assets and all asset classes in 2020 and has continued to do so this year. Dubbed the Digital Gold, it is commonly referred to as a pristine reserve monetary asset alongside Gold and Silver by many investors. Of course, I believe there are speculators within the group attempting to make a quick buck as the opportunity arises.
I do not doubt there are opportunities in volatility. As a trader myself, volatility trade can be profitable with insurance. However, volatility is not a good friend of mental health. I am not certain if you can sleep well at night if your net worth increases or decreases by 15% daily.
That said, that is the trading side of Bitcoin. We have to look at the intrinsic value of this asset. As Warren Buffett loves to say, what can this asset do for me?
His question can be paraphrased when it comes to Bitcoin. What is the use of Bitcoin, where, and for whom?
I will answer that later. For now, I will ask a simpler question.
Do you play video games?
Our understanding of digital currencies or Bitcoin, in particular, can take a quantum leap when we review the mobile games we play with our smart devices.
Take, for instance, a large scale online hyper-massive multi-player Command-and-Conquer type missioned-based game where millions of people gather to play in teams that compete with other teams.
We can further assume that the way to win this game against the ultimate Big Bad Evil Militant Boss is to annihilate his army of Orcs, Semi-Humans, Zombies, Vampires, Fire-spitting flying dragons first before the Final Face-Off. This is a game of speed, and the fastest team to complete both missions wins the game.
Interesting developments can happen, quite literally. If there could be an additional character coded into the game by the developer, where he is a virtually indestructible knight with shiny armor that kill 1,000,000 adversaries with a wave of his sword, AND only a limited number of such knights are available to the players, what do you think is the price of this knight in the primary and re-sale trading market?
It will shoot through the roof.
That is because the gamers see the importance of having this knight in their camps. Not their Mums, not their Dads, not their teachers. The gamer sees the high value of the indestructible knight, and so do his peers.
And because the gamer population sees the high intrinsic value of the limited edition knights, they will bid up the price to secure it to win the game.
The limited edition of the knights refers to a constrained supply of the knights in the game. When we limit the supply of high-quality items, the pricing mechanism explodes upwards. Bitcoin is limited to 21,000,000 million tokens.
And if we think about it — What exactly is this limited-edition indestructible knight that we are referring to here? Specifically, what is it at its core?
It is a script of code, possibly a few lines of code. That is about it.
Now, you might be wondering how a piece of code can command a premium in terms of price? Context is everything. That few lines of code might worth a million bucks to the gaming population. It could be worthless to you as a bystander.
This is like the high utility value of assessment books to parents and zero utility value to the students.
Beauty is in the eyes of the beholder.
If you believe in it and the premise it holds (limited in supply, decentralized ledger that is built on trust and does not require any third-party present for payment transactions and others) — You will pay that price.
Otherwise, you will not.
The value of Bitcoin is what we think it is.
One point to note — We must seek to understand before bashing it. It does have a premise that is attractive to investors and those concerned with their net worth.
We have to understand how these people (like the gamers) think. Once we do, the pricing mechanisms of this digital asset becomes comprehensible.
Play Some Video Games!
Aldric
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