Why can bitcoin support a trillion-dollar market cap?

Bitwise CIO: No Need to Panic Over Short-Term Corrections, Bitcoin’s Value Stems from the Essential Need for “Intermediary-Free Services.”

Written by: Matt Hougan, Chief Investment Officer at Bitwise

Translated by: Saoirse, Foresight News

This week, I’m setting aside my usual market commentary to share a macro perspective on bitcoin. I’m not concerned about the current market correction; in my view, this correction is essentially a short-term phenomenon.

Every year, I meet with thousands of financial advisors to discuss topics related to bitcoin. At every talk, I always start by answering a simple question:

Why does bitcoin have value?

It doesn’t generate profits, nor does it produce cash flow, and you can’t even touch it! So why does its market cap reach 2 trillion dollars?

Here’s how I approach answering this question.

Bitcoin Is a Service

In my view, bitcoin should not be seen as an “object,” but rather as a “service.”

The service bitcoin provides is enabling users to store wealth digitally without relying on governments, banks, or other third-party institutions. I prefer to redefine bitcoin as a “service” because I’ve found that many people get hung up on the fact that “you can’t touch it”—

“You’re telling me to spend $90,000 on something I can’t even touch?!”

But if you reinterpret it as a service, this confusion is easily resolved. And all of us are already used to the logic that “services have value.”

Take Microsoft as an example. The services Microsoft provides include: editing Word documents, handling spreadsheets, conducting Teams video conferences, and so on. As I write this memo, I’m using Microsoft’s services.

To use Microsoft’s services, I need to subscribe to Microsoft 365. Every year, I pay Microsoft $99.95. The team in Redmond, Washington, collects this fee, and the related profits are ultimately reflected in Microsoft’s net income.

An obvious fact is: the value of Microsoft’s stock is closely tied to the number of users who want to use its services. All else being equal, the more users need Microsoft’s services, the higher the company’s value; if fewer users need its services, the company’s value declines; if no one needs its services, the company’s value drops to zero.

The logic for bitcoin is similar: the more users need the service bitcoin provides, the higher its value; if fewer users need the service, its value declines; if no one needs the service, its value drops to zero.

Over the past decade, bitcoin’s price has risen by about 28,000%, and the core reason is this: more and more people want to store digital wealth “without going through corporate or government intermediaries”—in other words, they need the service bitcoin provides. Today, not only does the Harvard University endowment need this service, but so do the Abu Dhabi sovereign wealth fund, Ray Dalio, Stan Druckenmiller, various state pension funds, and myself.

However, there is a key difference between bitcoin and Microsoft: bitcoin does not have a corresponding “corporate entity” to collect fees, and users cannot access its service through “subscriptions” or “rentals.” The only way to access the service bitcoin provides is to purchase the asset itself.

In this increasingly digital era, with government debts accumulating worldwide, I believe more people will need the service bitcoin provides in the future.