Over the past few years, throughout Bitcoin’s strong rallies and upward momentum, some economists have criticized Bitcoin for its lack of intrinsic value. Ironically, this is something that neither fiat or most of the world’s assets have.

Economists that have been exposed to fiat and conventional economics for decades often struggle to grasp the financial and technical concepts of Bitcoin. The decentralized nature of Bitcoin is an ambiguous concept for most, primarily because they have not been exposed to such concepts in the past.

Despite the increasing demand from institutional investors for Bitcoin, including Fidelity which oversees $2.31 trillion in assets, economists such as Howard Marks, who runs $90 bln investment firm Oaktree Capital, are not ready to embrace Bitcoin due to its lack of intrinsic value.

Earlier this month, Marks was quoted by Wired:

“Digital currencies are nothing but an unfounded fad (or perhaps even a pyramid scheme), based on a willingness to ascribe value to something that has little or none beyond what people will pay for it.”

Centralized vs. decentralized

In essence, Marks is criticizing the absence of a fixed or intrinsic value for Bitcoin but ironically, fiat currencies also do not have intrinsic value.

The only difference between Bitcoin and fiat is that the former is decentralized and cannot be manipulated by a centralized group of administrators while the latter is centralized and can be manipulated by a centralized group of administrators.

For instance, if Bitcoin’s fixed supply is fixed at a total cap of 21 mln, the supply of the US dollar in contrast is not fixed and has consistently been altered and manipulated by the Federal Reserve, using the “quantitative easing” method.

Most supporters, users, traders and investors of Bitcoin are those that realize and acknowledge the potential of decentralized systems in distributing not only in the finance industry but in others as well.

Understanding the technology behind Bitcoin

In fact, the technology behind Bitcoin and Blockchain technology, which is immutable in nature, is being utilized by some of the largest multi-billion dollar companies to create innovative data processing and verification systems.

Economists like Marks do not seem to fully understand the technology behind Bitcoin. It is a sophisticated piece of software and its technical intricacies are difficult to breakdown.

But, as Goldman Sachs emphasized in its recent letter to its clients, investors do not necessarily have to understand the technology behind Bitcoin because the market has demonstrated the success of Bitcoin as a safe haven asset and as a store of value.

As Cointelegraph reported in its recent article, the bank wrote to its clients:

“The debate has shifted from the legitimacy of the ‘fiat of the Internet’ to how fast new entrants are raising funds. Whether or not you believe in the merit of investing in cryptocurrencies (you know who you are) real dollars are at work here and warrant watching especially in light of the growing world of initial coin offerings (ICOs) and fundraising that now exceeds Internet Angel and Seed investing.”

Bitcoin and its potential

More importantly, JP Morgan analyst Robert Boroujerdi also explained that the cryptocurrency market’s total market cap of $134 bln cannot be ignored by investors.

"With the total value nearly $120 bln, it’s getting harder for institutional investors to ignore cryptocurrencies. There are currently over 800 cryptocurrencies out there, though just nine have a market cap in excess of $1 bln”, says Boroujerdi.

Investors and certain economists that have failed to understand Bitcoin and its potential, as demonstrated by the market, cannot continue to be ignored.

It will continue to evolve into a major digital currency, competing against reserve currencies on the M1 list and against precious metals including gold.