What is the value of the Bitcoin network?

How much is Bitcoin really worth? It is hard to answer that question and assign a value to Bitcoin. It is much easier to default to one of two possible answers: (1) nothing, it’s worth zero! or (2) a lot, at least [insert a large number here]. So let’s start with the easier end of the spectrum, and explain why Bitcoin is probably not worth zero.

Bitcoin is both an asset (something that can owned) and a payments network (a way to transact with other people). How much is that network worth? Ultimately it depends on how useful that network is. Facebook is a network that has immense value because its users can interact with over 2B other people, and because any content provider and advertiser sees utility from being able to reach 2B people directly. The company that owns the network is valued at $500B, and presumably the network is worth even more: the company can only capture less than the total utility created in forms of revenues and profits (leaving some surplus to its users).

The value of a network is the direct result of how much utility is has. And utility increases with 2 drivers:

  • Number of network participants: the more people use it, the more it’s valuable to each individual user.
  • Useful features of the network: the phone network allows for voice conversations and texts, Venmo for free peer-to-peer money transfers, Facebook to stay connected with friends etc. Most networks try and are able to add features over time, increasing their value.

As a result, different networks have different values. If we use the (imperfect) proxy of market cap for privately owned networks, we can see network value per user cover a wide range: e.g. ~$80 per user for Twitter, ~$220 for Facebook, $430 for PayPal, over $1,000 for mobile operators. The wide differences in these numbers are driven by the number of participants, and by the value of the features offered by each network. When we look at market cap, monetization (how easily can the network owner convert the value delivered into revenues and profits?*) also plays a large role, but let’s leave that aside for now.

How does Bitcoin compare on the 2 drivers of network value we highlighted above?

In terms of number of participants, money.disrupted estimates there are ~215M users globally. That is a long shot from Facebook. It is similar to PayPal’s total number of ~230M active accounts, but PayPal users are more engaged, having completed at least one transaction over the past 12 months, and on average making 33 transactions a year. Many Bitcoin users are dormant, they own some but hold it and never transact (whether to pay in Bitcoin or to speculate on the price of Bitcoin). It isn’t to say they get no utility from Bitcoin, but it is certainly true that many owners would not see Bitcoin as a very useful tool in their everyday life. The path for the Bitcoin network to continue to increase in value by adding users is here: high level of global awareness, low level of adoption. However, a few things stand in the way: overall perception of Bitcoin by populations is quite negative, ease to access and store Bitcoin is still quite low. But all in all, it would not be surprising if Bitcoin reaches 4oo or 500M owners in a few years.

In terms of utility, there is much debate about what Bitcoin can be used for and what it can’t be used for. We have published in-depth research on this, but overall there are a few use cases that are promising in the short term (e.g. digital gold: useful low-correlation asset for diversification, private store of wealth, hedge against currency devaluation for some countries, P2P money transfer for a small segment of the population), and others that are still far-fetched given the current network’s capabilities (e.g. day-to-day in-store payments or even online payments). Overall Bitcoin is characterized by a long list of potential use cases, but is still relatively immature and sparsely used for most. In a nutshell: lots of promises, some early evidence of usage.

But for the sake of disproving the statement that Bitcoin is worth nothing we would say:

  • It is doubtful that a network of ~200M+ people across the globe is worth zero, especially since this network enables them to securely pay each other in minutes where the traditional banking system would require days (especially for cross-border payments).
  • If we look at PayPal as a comp (payment network), divide the value per user by two (PayPal users are way more engaged) we get an order of magnitude of $40-50B value for the Bitcoin network.

How does that value translate into a price for Bitcoin? We have a post on this coming soon!

Notes: * Subscription and fees networks make monetization easier: no matter how many ads Facebook manages to put in front of you, it is hard to match a $100-a-month phone subscription… so one AT&T customer is worth more to AT&T than one Facebook account is to Facebook. Another example is Twitter, which provides great to utility to its heavy users, and yet famously struggles to convert that value into revenues.

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