Why do some people buy bitcoin above $100,000, while others think it's worth nothing? Does crypto actually have real value, or is the whole thing just another tulip craze waiting to blow up?
Let's examine arguments from both sides and explore how the market determines crypto’s value.
How do bitcoin and other cryptocurrencies have value?
Many cryptocurrencies are aspiring monetary assets, which means supply and demand drives most of their value. This is different from assets like stocks, bonds, and real estate, where values are largely based on future cash flows. Note that some cryptocurrencies also have viable paths to generating future cash flows, though this is less common.
Demand for cryptocurrencies exists due to a few core factors:
- Network effects. A social media platform with hundreds of millions of users is worth more than one with only hundreds of users. This is an example of the network effect, where a product gets more valuable as more people use it. The same phenomenon applies to the cryptocurrency market. For example, millions of people (as well as several world governments) currently hold bitcoin. Others may see these kinds of statistics and feel compelled to join the party.
- Utility. The most common use cases involve payments and trading, both of which can be done at any time without a third-party intermediary. Additionally, some cryptocurrencies allow you to access other blockchain-related functions, like smart contracts, DeFi applications, and real-world asset tokenization (where ownership of physical assets is tracked and transferred via a blockchain).
- The potential for future returns. Many crypto holders are investors who buy cryptocurrencies in hopes that the price will go up over some period of time. Some use tokenomics (how a cryptocurrency’s supply characteristics are structured) to guide their decision.
What makes the price of bitcoin and other cryptocurrencies go up and down?
In addition to the fundamentals already discussed (network effects, utility, and the potential for future returns), several short-term factors can also influence crypto prices:
- The news. To name a few: geopolitical tension; the lifting or imposing of crypto regulations; announcements that a company or government is buying cryptocurrencies; or announcements that a blockchain network is making upgrades. News headlines like these can influence investors to buy or sell, impacting price.
- Macroeconomic environment. Monetary policies determined by central banks and governments have proven to impact crypto prices in the past. The 2020 bull market, for example, was driven in part by the Fed’s decision to cut interest rates during the year.
- Market dynamics. Trading activity by both human and automated traders can push prices up or down, whether there’s news or not. Crypto markets are open 24/7, so price can fluctuate at all hours of the day.
Additional reasons crypto supporters believe cryptocurrencies are valuable
Now let’s explore some of the more subjective reasons advocates believe crypto prices are justified—or even undervalued:
- Decentralization. Most cryptocurrencies are maintained by a decentralized network of computers (meaning instead of the data being stored in one place on a computer or on a server maintained by one person or company, a network of unrelated computers known as "nodes" each maintain their own copy of the ledger). Note each cryptocurrency may have a different degree of decentralization. This is different from fiat currencies (currencies issued by governments), which are maintained by a single, centralized organization (e.g., a central bank). Supporters argue decentralization prevents any one group or organization from manipulating the currency, making certain cryptocurrencies more trustworthy than fiat currencies.
- Inflation hedge. This argument is made primarily by bitcoin advocates. They argue bitcoin’s limited supply of 21 million coins makes it a more effective store of value than fiat currencies. Governments can print as much fiat as they want, thereby potentially causing inflation. But bitcoin’s total supply is restricted by code that theoretically can’t be changed, which significantly lowers the risk of inflation.
- Scarcity. Cryptocurrencies with fixed maximum supplies (like bitcoin’s 21 million cap) are scarce by definition. Supporters argue this relative scarcity can help drive up the value of the cryptocurrency over time, provided demand increases as well. Note, however, that this doesn’t apply to all cryptocurrencies, as some have unlimited supplies.
- No third-party intermediary needed for transactions. Thanks to blockchain technology, you can send cryptocurrency directly to someone else without going through a bank or other traditional third-party. This can result in near-instantaneous transactions that may incur lower fees compared to traditional transaction routes.
Why skeptics believe cryptocurrencies are overvalued
Of course, not everyone is convinced that the arguments above are enough for a digital asset like bitcoin to be worth 6 figures. Some of the most prominent counter arguments include:
- Most have yet to succeed as mediums of exchange. Bitcoin, the first cryptocurrency, launched in 2009. One of its main goals was to become a medium of exchange (i.e., a currency used to buy goods). It has been nearly 2 decades since bitcoin's creation, but it has yet to be widely used in this manner. Skeptics doubt whether cryptocurrencies will ever be used as a medium of exchange as ubiquitously as traditional currencies. And if they fail to realize this vision, are they truly as valuable as supporters think they are?
- Too frequently used for scams. Smaller cryptocurrencies (for example, memecoins) are often used for pump-and-dump schemes (where bad actors hype a coin to attract buyers, then sell all their holdings at a profit, sending the price falling). Skeptics argue this is a black mark on crypto’s legitimacy and will hurt its chances of wider mainstream adoption in the long run.
- Lack fundamental backing. Unlike stocks (which represent company ownership) or bonds (which promise specific payments), most cryptocurrencies don't generate cash flows or have tangible assets backing them. Skeptics argue this means crypto prices are driven primarily by speculation rather than intrinsic value.
- Debatable economics. Some skeptics question whether an economy that runs on a currency with a fixed supply (like bitcoin’s 21 million) is truly viable, as it could result in harmful deflation. Others call into question cryptocurrencies with unlimited maximum supplies, which could lead to a lack of scarcity that significantly hurts long-term value.
What to consider before buying cryptocurrencies
Ultimately, those who don’t believe in crypto’s long-term vision may exclusively use basic supply and demand to think about crypto’s value. Meanwhile, supporters will also include its decentralized nature, ability to transact without a third-party intermediary, and potential to act as an inflation hedge or create scarcity in their analyses.
While past performance is no guarantee of future results, crypto as an asset class has helped increase portfolio values and diversification during certain periods throughout its history. As of 2025, it may be gaining momentum on the regulatory front as individuals in the federal government push to establish clear guidelines for crypto operations.
At the same time, investors should remember that crypto is highly volatile and may be more susceptible to market manipulation than securities. And despite recent hints at progress, the regulatory environment is still uncertain and continues to evolve. In light of this, only invest an amount you can afford to lose.