Intrinsic Value

“Value is thus nothing inherent in goods, no property of them, nor an independent thing existing by itself. It is a judgment economizing men make about the importance of the goods at their disposal for the maintenance of their lives and well-being. Hence value does not exist outside the consciousness of men.”¹ - Carl Menger

The previous sections demonstrated that valuation multiples arise from narrative context more so than they are derived from available information. If that claim holds, there are specific consequences for any model that assumes objective valuation targets are possible. The best-known such target is intrinsic value² which analysts frequently present as an impartial or discernible property of risk assets and commentators invoke as a force that eventually restores equilibrium when prices deviate from perceived or accepted norms.

This is a misleading and inaccurate characterization as it suggests there are qualities inherent to an asset that are independent of the one observing (valuing) it. We have no means of directly observing intrinsic value, thus any assumed valuation qualities are, in fact, relational properties that emerge from the interaction between the asset and the observer. What we refer to as intrinsic value is an assumption-driven, model-dependent estimate, shaped by assumptions that we cannot validate.³

What does this imply for valuation models that assume intrinsic value as their target? In the case of Discounted Cash Flow (DCF) analysis, consider that the inputs of discount rate and beta (typically derived from historical market prices) would naturally reflect prior sentiment about an asset. This intrinsic link with past data means any resulting analysis cannot be independent of prevailing sentiment, and would be functionally derivative of historical price. The very nature of these valuation inputs embeds a recycling of historical volatility, which contaminates any potential “signal” gleaned from DCF analysis.

This inherent self-referentiality reveals DCF as a tool for disciplined speculation⁴ where altering narrative inputs leads to corresponding changes in mathematical outputs. Understanding this, the notion of intrinsic value follows price as a disciplined effort to justify, contest, or replace market consensus. It functions primarily as a rhetorical device that supports the structuring of valuation arguments, but does not precede price as an objective anchor.

Assuming that there are competent analysts operating with identical information, all else being equal, truly objective methodologies would yield consistent valuations. However, analysts examining the same balance sheet, earnings history, and competitive landscape frequently produce divergent, often irreconcilable valuations. These discrepancies occur because valuation requires judgment, and while intrinsic value provides a foundation for justification, reasonable individuals will differ in their interpretations.⁵

Bitcoin & The Myth of Intrinsic Value

There is ample evidence that popular estimation methods are compromised and intellectually flawed. To further validate this requires testing whether the fundamental assumptions underlying these methods are coherent across a diverse set of cases. To that end, we should test those assumptions, and apply similar logic against an especially “hard” asset; one with cryptographically guaranteed, objective properties. Bitcoin serves as an excellent conceptual test case for intrinsic value, as it has clear, discernible characteristics such as a fixed supply, immutability, decentralization, censorship resistance, and security.

While these attributes are inherent to Bitcoin; as we discussed in the “Defining Price” section, even though qualities may be objective, their impact on Bitcoin’s price depends entirely on how market participants interpret and forward-model their implications. One could take the coherent and defensible philosophical position that Bitcoin’s nature as sound money or digital gold imparts upon it an objective value that exists whether anyone recognizes it or not. Yes, these are verifiable properties; but every attempt to place a “number” on them requires sentiment-rich, future-facing assumptions. Even if we were to grant that Bitcoin has some intrinsic value embedded within, that value is epistemically inaccessible as no one can observe it, measure it, or validate it.

Case in point, Bitcoin requires energy to mine, and the energy cost of mining is often considered as a production-based floor for Bitcoin’s value. But production cost tells us what was spent to mine the Bitcoin and nothing about what was gained. If a Bitcoin Mining company spends $100,000 to mine a Bitcoin that the market subsequently prices at $50,000, that gives a measure of the loss that was incurred, not a floor to the price. If the value were intrinsic, that $100,000 cost would serve as a valuation anchor for its worth, but price, regardless of production costs, is set by demand and market dynamics.

This shows that affirming objective or intrinsic value is a philosophical stance, not an empirical observation. That is why this essay draws a clear line between epistemological knowledge and ontological claims. To hold that Bitcoin possesses intrinsic value, one would have to logically support the claim that unobservable and unmeasurable quantities, approximated only through subjective judgment, somehow constitute an objective truth, that supersedes sentiment. Since none of Bitcoin’s objective qualities contain a price or valuation; a distinction between fact and value⁶ exists because both price and valuation emerge downstream of how those qualities are interpreted and perceived. To assume that because a thing has objective properties, it must also have objective worth, confuses the existence of objective facts with the attribution of market value.

Contingent Value & The Disconnected Individual

Taking the conversation into more concrete territory, consider that if Bitcoin’s value were truly intrinsic and independent of observer and context, then logically it cannot be contingent on external forces and infrastructure. Bitcoin’s functionality, however, depends upon electricity, internet connectivity, mining hardware, and node infrastructure. If we removed any of these, Bitcoin would become nonfunctional, but this does not mean that it would immediately become worthless. The protocol would still exist as code with all the qualities therein, but the value proposition those properties support would have no means of operation. If the value derived from these properties were truly intrinsic, it could not be neutralized by removing an external condition; Bitcoin without power to run on, or a network to exist on, shows itself as a digital abstraction whose value is not innate, but relational and contingent.

The Blind Ledger thought experiment from the “Understanding Valuation” section illustrated how stripping narrative context from financial data renders it inert. If we apply this framing to a Disconnected Individual model, we will understand that stripping practical context from Bitcoin’s properties makes them equally inert. Consider an individual living in a rural area without internet or reliable power: what would be their use case for Bitcoin? Its properties, whether fixed supply, censorship resistance, or decentralization, are all meaningless abstractions to someone who cannot access the network. The supply cap that a person in New York considers the foundation of sound money is irrelevant to someone without internet access in rural China or the Appalachian Mountains. The properties in question have not changed; only the context and locale of potential interpretation have. If value were intrinsic to the properties, it would be invariant across observers or locations.

Here we see that the Blind Ledger and now the Disconnected Individual both demonstrate that information and properties require an interpretive framework to acquire value, without that framework, what presents itself as a claim about objective worth is faith and belief attempting to shield itself with the language of objectivity.

Footnotes

1. Carl Menger, Principles of Economics - First, General Part (1871; The Free Press/Macmillan, Glencoe, Illinois, 1950), https://cdn.mises.org/principles_of_economics.pdf. ↩

2. Wikipedia: Intrinsic Value ↩

3. Damodaran, Aswath. 2014. “Numbers and Narrative: Modeling, Story Telling and Investing.” Presentation. https://pages.stern.nyu.edu/~adamodar/pdfiles/country/narrative&numbersDEShaw2024.pdf. ↩

4. Damodaran, Aswath. 2006. “Valuation Approaches and Metrics: A Survey of the Theory and Evidence.” November. https://pages.stern.nyu.edu/~adamodar/pdfiles/papers/valuesurvey.pdf. ↩

5. Damodaran, “Valuation Approaches and Metrics: A Survey of the Theory and Evidence.” ↩

6. Wikipedia: Fact-Value Distinction ↩