Professor Coin: What Gives Bitcoin Its Value?

Favorite Andrew URQUHART is professor of financial financial and technology and head of the Finance Department of Finance School (BBS).

This is the eight installation of the Professor coin column, in which I have brought insight important of academic literature publatched on cryptorecents to the Decrypt reader. In this article, discuss what it gives Bitcoin value.

In just more than a dozen, bitcoin went by a niche innovation in Cript to a global business of commercial with a market capitalization in the Hundreds of billions. I am

However in spite of his prominence, a persistent question remains: what gives its value its value?

Bitcoin does not generate a cash flow like a company, it is not supported by physical reserves such as gold, and has no central authority that has guaranteed value. So why do people willing to pay tens of thousands of dollars for a digital token? Recent academic research to many factors.

The policy of scarcity and monetary

The first bitcoin value pill is their scheduled scarcity. Bitcoin has a fixed supply: only 21 million coins it will ever be created. This limit is enforceded by the rules of the network consent and is viewers as supporting as a bulwark against inflation.

Academic studies have Bitcoin aminer to gold because of this scarcity. Powder and bormaschi (2018) Bitcoin Model as a Decntralized network that the value of the user’s value and security, both of them are subjected by incentive incentives in their monetary policy. In their balance frame, scarcity plays a key role in support the long-term value.

The scarcity makes bitcoin attractive as a heel against inflation, especially in a world of money expansion. An economist number investigated if the bitcoin scarcity can explain their assessment with Kruger, Meyer, and Conagen (2022) showing the breeding Stock pattern to flow Fits historical goods rousinely well, reaffirming the importance of scarcity as a component of the bitcoin perceived value.

Network effects and utility

Scarcity is not enough without the demand question – and bitcoin comes from their use as the peer dirts to peer and the belief that they agree to the figures.

This is where the network effects enter play. According to Cong, li, and wang (2021) Bitcoin value grows with their user base. Their tokenomics model shows that the most people adopt and trust the bitcoin, the most valuable the net. This dynamic helps explain why bitcoin survived many bombs and busted cycles.

Apart from, Bolt and Van Oort (2016) Landing that the value of a virtual currency range if users wait to keep the value and be accepted in transactions. Their model formalizes how much acceptances of acceptance can stabilize a volatile asset such as bitcoin.

Cost of production and network security

Bitcoin is also undervalued by a real-world cost: Mining. To ensure the network and process transactions, bitcoin is based on a system called Proof – of workwhere miners Compete to solve the cryptographic puzzles using electricity and hardware.

This one Intensive process of energy is not without controversy but researchers like Hayes (2015) They showed that production cost provides a fundamental plan for the price of bitcoin. I’ll find that bitcoin rarely shops under the marginal cost, reinforce the idea that the energy of the security for assessment.

Additionally, the work of Powder and bormaschi (2018) SUCH SUCH THIS MY MINISTS’S INSENTS AND STREATING INTENCE IS CENTER IN BITCIN’S BITALITY value, not only supply and then in the traditional sense.

Spekulation, feeling, and attention

In practice, however, The price of bitcoin Also reflect the feeling and speculation of investment. A source in the media cover or social media buzz can trigger the price ralies or to

Studies from Urquhart (2018) and it Shen et al (2019) Prices that bitcoin prices are strong correlated with online search trends and this volume of trade on turn, drive the attention instructed.

They are similar Liu and Tsyvinski (2021) Show that CRYPROURERENENENENENENENENENENENENENENENCY returns are significantly planned by investor’s proxies. Unlike the nieces axes, bitcoin is missing the macroeconomic fundly, so feeling and beliefs play an outer role.

Role and macroeconomic portfolio

Bitcoin value is also formed by his role in the largest financial system. In a low rate and inappropriate rate environment of the Fiat coin, investors returned to the bitcoin as a non-sovereign store. This is demonstrated by the early work by BAUR et al (2018) that show that investors are held bitcoin for long periods, but it is supported by follow-up work Jueshahloo et al (2025). I am

Recent search has attempted the role of bitcoin in portfolios, especially in times of the market stress. Corbet, Larkin, and Budey (2020) Find that bitcoin behave more like a gathered jar than a traditional mixtive of traditional, but can act as weakness in certain market conditions. In a similar vein, Ji, Bourni, Lau, roublay (2021) Use the time shooting patterns and show the owners of Bitcoin blinds significantly, with greater effective during periods of tranquility rather than crises.

Conclusion: Value from the code, community, and credentials

The Bitcoin value goes out of an engineer and economy mixture on downloading by the code, utility digned by a decengerized consensus, and asked for feeling.

It is that there is a commodity, a tight of a technology, and a speculative token – often at once. The compliment is what makes bitcoin both fascinating and so difficult to value the traditional templates.

At the end, Bitcoin’s punment is alright in what is doing today, his users believe that I can become tomorrow. And as much credentials persists from the utility, adoption, and the incentives-value may also persist.

References

Baur dg math, kh., Lee, ad (2018). Bitcoin: exchange medium or speculative assets? Journal of international international markets, institutions and money54, 177-189.

Bolt, W., & Van Oordt, MRC (2016). On virtual currency value. I am Journal Of Financial Stability17, 81-91.

Cong, LW, LI, Y., & Wang, N. (2021). Tokenomics: adoption and dynamic assessment. I am Reviewing financial studies34 (3), 1105-1155.

Corbet, S.Larkin, C., & By Luigays B. (2020). The effects of the covenant’s concipients: evidence of gold and criphery. I am Financial search letters35, 101554.

Hayes, A. (2015). A pattern of production model for bitcoin. I am Telemic and informatic34 (7), 1308-1321.

Jahanshahloo, H., irresbanger, F., URQUART, A. (2025). Bitcoin under the microscope. I am British accounting reviewNotice.

Ji, Q. Bourges, E. I, her ckm, & Roubaaud, D. (2021). The dynamic connection and integration in crystorrectness markets. I am International Review of Financial Analysis74, 101670.

Kruger, P., Mey Meon, C. & Ne Parisen P. (2022). Is the Bitcoin’s Bitcoin Bitcoin model? Financial search letters48, 102956

Liu, Y., & Tsyvinski, A. (2018). Risks and cryptocrency returns. I am Nber of work work no 24877.

Bored, E. and Burasks, A. (2018). A Bitcoin’s balance rating and the deccentralized network assets. I am Reviewing financial studies31 (9), 3498-3531.

Shen, D., URQUART, A., Wang, P. (2019). Twitter predict bitcoin? Economia’s letters 174, 118-122.

Urquhart, A. (2018). What does bitcoin attention? Letters of economy, 166, 40-44.