(Kitco News) – One of the common misconceptions about bitcoin is that its inherent worth should be zero given the asset’s youth and digital characteristics, as opposed to a naturally-occurring element like gold, with more than 5,000 years of history as a monetary asset.
The large network effect is what gives bitcoin its inherent value, said Lyn Alden, founder of Lyn Alden Investment Strategy.
“Bitcoin’s network effect is very strong and that’s what really separates it from just about any other coin. Anyone can technically copy it, bitcoin is open source, you can copy it and run it, it’s kind of like how you can copy Wikipedia and you can run it, the problem is getting traffic to whatever you’re doing. With bitcoin, you have over 10,000 nodes around the world running it, and some estimates are far higher because not all of them are visible. That can’t be replicated just by copying the code,” Alden said.
Another risk that investors have assigned to bitcoin is whether or not the digital currency is currently in a bubble.
“Part of the answer to that question is zooming out. It’s like a bubble in the near-term, especially if you’re looking at the linear charts, you see thing go from near zero and skyrockets all the way to $20,000 and then collapse so it looks like a bubble. That was actually my concern back in late 2017,” she said. “If you zoom out and look at the logarithmic charts, you can actually see that bitcoin is following a very rhythmic pattern. Ever since inception, it tends to have these big blowout tops every four years, and then it corrects, it consolidates, and then it eventually shoots up to another high.”
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