What is the Value Foundation of Bitcoin? Analyzing Its Investment Value from a Value Investment Perspective

This report systematically analyzes the core value foundation of Bitcoin (BTC) and evaluates its investment potential from the perspective of value investing. By 2025, Bitcoin has transitioned from a marginal technological experiment to a major asset class, rivaling the market capitalization of top global companies and holding a place in institutional investment portfolios. However, the debate over its “intrinsic value” remains unresolved. This report first examines the multi-faceted pillars supporting Bitcoin’s value, including its supply-side scarcity, demand-side network effects, production cost theory, and unique technological attributes. Subsequently, it applies the framework of Benjamin Graham, the father of value investing, to Bitcoin, exploring the applicability and limitations of traditional valuation methods. Key quantitative models such as the Stock-to-Flow (S2F) model, Network Value to Transactions (NVT) ratio, and production cost models are analyzed, along with a safety margin analysis based on 2025 market data. Finally, the report assesses the impact of macroeconomic trends, regulatory developments, and institutional adoption on Bitcoin’s risk and investment appeal. The findings reveal that Bitcoin’s value is rooted in its unique positioning as a decentralized, censorship-resistant digital scarce asset. For value investors, while traditional discounted cash flow models are inapplicable, alternative valuation frameworks may identify investment opportunities. However, this investment decision heavily depends on investors’ belief in the future role of digital assets and requires acknowledging unprecedented volatility and regulatory uncertainty.

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Part 1: The Value Foundation of Bitcoin—Beyond Traditional Asset Paradigms

Since its inception in 2009, the value foundation of Bitcoin has been a central topic of debate in academia, finance, and technology. Unlike stocks (representing claims on future corporate cash flows), bonds (claims on interest and principal), or real estate (providing utility and rental income), Bitcoin does not generate direct cash flows. Understanding its value requires a new, multi-dimensional analytical framework.

1.1 Supply and Demand: Economics of Digital Scarcity

The basic economic principle of supply and demand is the starting point for understanding Bitcoin’s value.

Supply Side: Absolute Scarcity in the Digital World

The most distinctive feature of Bitcoin is its supply mechanism, which is hard-coded into its protocol, offering extreme determinism and predictability. This forms the cornerstone of its value proposition.

• Fixed Supply: Bitcoin’s total supply is permanently capped at 21 million coins. Unlike fiat currencies that can be infinitely inflated by central banks, Bitcoin’s fixed supply gives it the “hard asset” characteristics of precious metals. This digital scarcity is a core argument for its role as a hedge against inflation and a long-term store of value.
• Deflationary Emission Rate: New Bitcoin is created through “mining,” rewarding miners who maintain network security. According to the protocol, the block reward halves approximately every four years, an event known as a “halving.” The most recent halving occurred in 2024, further tightening the supply of new coins. This predictable deflationary model means Bitcoin’s inflation rate decreases over time, approaching zero.
• Mining Difficulty Adjustment: The Bitcoin network adjusts mining difficulty every two weeks to maintain a stable block time of approximately 10 minutes, regardless of network computational power. This mechanism ensures the stability and predictability of Bitcoin’s supply.

Demand Side: Diverse and Evolving Drivers

The demand side of Bitcoin is complex, dynamic, and continuously evolving.

• Store of Value (SoV): This is currently the primary demand driver. In an era of global macroeconomic uncertainty and fiat currency devaluation, Bitcoin is increasingly viewed as a “digital gold” for hedging inflation and geopolitical risks. Its divisibility, portability, and storage ease make it superior to physical gold in some aspects.
• Medium of Exchange: Despite high volatility and transaction fees limiting its use in everyday small payments, Bitcoin shows potential in cross-border payments, censorship-resistant transactions, and as a foundation for second-layer solutions like the Lightning Network.
• Speculative Demand: The high volatility attracts significant speculative interest. Market sentiment, media hype, and retail “FOMO” (fear of missing out) significantly influence short-term prices.
• Institutional Adoption: Since 2020, particularly with the approval of Bitcoin spot ETFs in the U.S. in 2024, institutional demand has become a key driver of Bitcoin’s value growth. This will be detailed further.

1.2 Technology and Network: The Underlying Value

Bitcoin’s value is not only economic but also deeply rooted in its technological innovation and network characteristics.

• Decentralized Trust Machine: Bitcoin’s core innovation is solving the “double-spending” problem without a central intermediary through a combination of proof-of-work consensus and blockchain data structures. This enables peer-to-peer value transfer without mutual trust, ensuring transaction finality and immutability. This decentralized trust, built on computation and cryptography, is Bitcoin’s most fundamental service.
• Network Effects (Metcalfe’s Law): Metcalfe’s Law posits that a network’s value is proportional to the square of its users. This law provides a theoretical model for Bitcoin’s value growth. As holders, developers, miners, exchanges, and institutions adopt Bitcoin, the network’s utility and security increase, attracting more participants in a positive feedback loop. While quantifying Metcalfe’s Law for Bitcoin is challenging, it qualitatively explains the exponential impact of adoption on Bitcoin’s value.
• Security and Censorship Resistance: The decentralized network of thousands of nodes and massive hash power protects Bitcoin as the most secure decentralized public chain. The cost of attacking or tampering with the Bitcoin ledger is prohibitively high, making it highly resistant to attacks. Its decentralized architecture makes it difficult for any single entity (including governments) to freeze accounts or block transactions, providing a valuable asset protection tool for individuals in financially unstable or authoritarian regions.

1.3 Production Cost Theory: A “Soft Floor” for Value

In classical economics, a commodity’s long-term price tends toward its marginal production cost. Some analysts apply this theory to Bitcoin, suggesting its “production cost” serves as a “soft floor” or value anchor.

• Theoretical Basis: Miners consume significant electricity and specialized hardware (ASICs) to solve complex mathematical problems to earn new Bitcoin and transaction fees. These inputs constitute Bitcoin’s production cost. In a rational, competitive mining market, if the market price is below the production cost, miners will incur losses and shut down, reducing network hash rate, which lowers mining difficulty, restoring profitability for remaining miners. Conversely, high prices attract more miners, increasing hash rate and marginal costs, exerting upward pressure on prices.
• 2025 Production Cost Estimates: Estimating Bitcoin’s average production cost in 2025 is complex due to variations in miners’ electricity costs, hardware efficiency, and operational scales.
  • Data Integration: Multiple sources provide 2025 cost data, but there are discrepancies. For example, one report estimates the average electricity cost in Q1 2025 at 54,002. Another estimates the average cash cost in 2025 at $74,600. Some reports even suggest total costs (including depreciation and management fees) could reach $99,383 in September 2025, with a single-day estimate of $115,122.
  • Cost Range: A reasonable estimate is that, post-halving in 2024, by the end of 2025, the average cash production cost (mainly electricity) for global Bitcoin mining is between 65,000, while publicly listed large mining companies’ All-in Sustaining Cost (AISC) is typically between 100,000.
• Cost as a Value Anchor: This cost range provides a crucial reference for Bitcoin’s value. If the market price falls toward or below this range, it puts immense financial pressure on miners, potentially leading to industry consolidation, but also provides a potential value judgment for long-term investors.

1.4 Controversy and Criticism: “No Intrinsic Value” or “Tulip Mania”?

Despite the above value foundations, the most sharp criticism of Bitcoin revolves around its “intrinsic value” being nonexistent.

• “No Intrinsic Value” Argument: Many traditional investors and economists, including Warren Buffett, argue Bitcoin lacks intrinsic value. Their logic is that Bitcoin is a non-productive asset, unlike companies that generate profits, bonds that pay interest, or real estate that provides utility. Thus, its price depends entirely on the next person’s willingness to pay, fitting the “greater fool theory” (GFT).
• Speculative Bubble Argument: Bitcoin’s historical price volatility and boom-bust cycles often draw comparisons to historical speculative bubbles, such as the 17th-century Dutch Tulip Mania. Critics argue its price is driven by irrational market sentiment, hype, and unregulated speculation, lacking solid fundamentals, and is prone to collapse.

Summary: Bitcoin’s value foundation is composite and unique. It combines digital scarcity with the utility of a decentralized, censorship-resistant global network, supported by a real-world energy-intensive production process. It is neither a traditional commodity nor a security, but a new asset class. The debate over its “intrinsic value” stems from differing acceptance of this new value paradigm.

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Part 2: Value Investing Perspective on Bitcoin—Finding Safety Margins in a Volatile Market

The core of value investing is “buying quality assets at a price below their intrinsic value” with a sufficient “safety margin” to account for future uncertainty. Applying this 20th-century investment philosophy to the 21st-century digital asset Bitcoin is a challenging but insightful intellectual experiment.

2.1 Challenges and Reconstruction of Value Investing Framework for Bitcoin

Benjamin Graham’s classic value investing framework is designed for productive assets with predictable future cash flows. Directly applying its formulas to Bitcoin immediately presents obstacles.

• Graham’s Challenge: Graham’s valuation methods, whether based on discounted cash flow (DCF) or asset liquidation value, require assets that can generate predictable cash flows or have quantifiable tangible assets. Bitcoin does not meet these conditions. This explains why, in academic literature from 2022-2025, there are almost no peer-reviewed papers applying Graham’s original methodology to Bitcoin (Query: “peer-reviewed academic papers…applied Benjamin Graham’s…methodology to Bitcoin”).
• Reconstructing “Intrinsic Value”: To apply value investing to Bitcoin, the first step is to reconstruct the definition of “intrinsic value.” For Bitcoin, its “intrinsic value” is not derived from cash flow generation but from the sum of all its unique attributes as a non-sovereign value storage tool. These attributes include absolute scarcity, decentralized trust, global network effects, and the code-guaranteed monetary policy. Assessing Bitcoin’s intrinsic value involves evaluating the extent to which market demand for these unique attributes will grow in the future.
• “Mr. Market” Analogy Still Applies: Despite the need to adjust valuation methods, Graham’s “Mr. Market” analogy perfectly describes Bitcoin’s market characteristics. Bitcoin’s market sentiment is highly volatile, with extreme optimism and high prices coexisting with extreme pessimism and low prices. This provides opportunities for independent, emotion-free value investors to buy when “Mr. Market” is panicked and prices are far below their long-term value trend.

2.2 Quantitative Valuation Models for Bitcoin

Since traditional DCF models are inapplicable, value investors must develop alternative valuation models for Bitcoin.

1. Production Cost Model (Cost of Production Model)

As discussed in Part 1, the mining cost can serve as a “soft floor” for Bitcoin’s value.

• 2025 Safety Margin Analysis:
  • Intrinsic Value Lower Bound (Cost): Based on 2025 data, the full AISC production cost for global Bitcoin mining is estimated between 100,000. A conservative value investor might consider the lower end of this range, $70,000, as a very conservative intrinsic value estimate.
  • Market Price: In 2025, Bitcoin’s price fluctuated significantly, with some periods near 80,000.
  • Safety Margin Assessment: When Bitcoin’s price is around 120,000 or higher, the price is far above production costs, indicating a negative safety margin from this single model.

2. Stock-to-Flow (S2F) Model

The S2F model, proposed by pseudonym PlanB in 2019, attempts to predict Bitcoin’s future price by quantifying scarcity.

• Model Principle: The model’s core idea is that an asset’s value (market cap) has a power-law relationship with its S2F ratio (total stock / annual flow). Due to Bitcoin’s “halving” mechanism, its S2F ratio increases stepwise, approaching gold’s level. Thus, the model predicts Bitcoin’s price will also grow exponentially.
• Performance and Controversy: Before 2022, the S2F model showed remarkable predictive power for Bitcoin’s long-term trend. However, after 2022, Bitcoin’s price significantly deviated from the model’s predictions, leading to increased criticism. Critics argue the model ignores demand-side changes, macroeconomic factors, and regulatory risks, and may suffer from cointegration misspecification.
• 2025 Perspective: By 2025, the S2F model is more of a theoretical framework for “scarcity-driven value” rather than a precise pricing tool. Its 2025 price predictions (often in the tens of thousands of dollars) are viewed as highly optimistic upper bounds. Some research attempts to integrate macroeconomic variables (e.g., interest rates and inflation) into similar models to improve their explanatory power, but this is still in its early stages. For value investors, the S2F model provides a narrative for Bitcoin’s long-term potential but cannot serve as a reliable short-term trading tool.

3. Network Value to Transactions Ratio (NVT)

The NVT ratio, proposed by analyst Willy Woo, is the “P/E ratio” of the cryptocurrency world, measuring whether the network’s value is overvalued or undervalued relative to its on-chain transaction activity.

• Calculation and Interpretation: NVT = Network Market Cap / Daily On-chain Transaction Value (in USD). A high NVT ratio may indicate a speculative bubble, while a low NVT ratio suggests a healthier balance between network value and transaction activity.
• 2025 NVT Signals: In 2025, Bitcoin’s NVT ratio showed complex signals.
  • “Golden Cross” Signal: Multiple sources reported a “Golden Cross” signal for Bitcoin’s NVT ratio around 1.51 in 2024. This signal is often interpreted as positive, indicating that Bitcoin’s price increase is supported by real on-chain value flow, not just speculation.
  • Data Fluctuation and Conflict: However, 2025’s NVT data was not consistent. For example, some sources reported the NVT ratio at 1.48 on November 13, while others showed a spike to 29.2 (possibly referring to NVT Signal, a variant) on August 7, and a rise to 1.98 on October 20, near historical tops.
  • Comprehensive Interpretation: These conflicting data suggest that the NVT ratio is a dynamic indicator whose readings fluctuate with market activity. However, overall, 2025’s NVT ratio did not enter extreme historical bubble territory (e.g., NVT far above 2.2), but rather fluctuated around a relatively “healthy” central range. This supports the view that, despite high prices, Bitcoin’s network fundamentals (on-chain transaction activity) are growing in sync, not severely decoupled.

2.3 2025 Macro Context: Risk and Opportunity

Value investing must also consider the macro environment. By 2025, key external factors affecting Bitcoin’s investment value include institutionalization, regulatory evolution, and risk-adjusted performance.

1. Institutionalization: From Alternative to Mainstream

2024-2025 is a decisive period for Bitcoin’s institutionalization.

• Institutional Holdings: By 2025, institutional holdings of Bitcoin have reached staggering scales. Reports estimate that centralized institutions (including ETFs, listed companies, governments) control 30.9% of the circulating supply, valued at 10 billion in Bitcoin in 2025. Companies like MicroStrategy, which hold Bitcoin as a core corporate strategy, also hold hundreds of billions in value.
• Impact on Investment Value: Institutional adoption brings multiple benefits:
  • Enhanced Legitimacy and Trust: Major financial institutions like Goldman Sachs and JPMorgan offering Bitcoin-related services significantly reduces investor concerns.
  • Improved Liquidity and Market Depth: Institutional capital inflows thicken the market, reducing price slippage and smoothing extreme volatility.
  • Shift in Asset Classification: Bitcoin is transitioning from a high-risk speculative asset to a strategic diversification and inflation-hedging tool in institutional investment portfolios. Some models suggest allocating 1-5% of a portfolio to Bitcoin to optimize risk-return ratios.

2. Regulatory Environment: Clarity and Uncertainty Coexist

Regulation is the “Achilles heel” of Bitcoin, but also a catalyst for its maturation.

• Positive Progress: The U.S. SEC’s approval of Bitcoin spot ETFs in early 2024 was a milestone regulatory progress, signaling a more mature approach to Bitcoin as a legitimate investment asset. Globally, regulatory frameworks like the EU’s MiCA bill are gradually taking shape, enhancing market transparency and stability.
• Ongoing Risks: Despite progress, the global regulatory landscape remains fragmented and uncertain. Divergent national attitudes toward cryptocurrency, potential tax policy changes, stricter anti-money laundering (AML) regulations, or crackdowns on decentralized finance (DeFi) could significantly impact Bitcoin’s valuation and adoption.

3. Risk-Adjusted Performance: High Returns with High Volatility

From a risk-adjusted return perspective, Bitcoin’s performance in 2020-2025 has been complex.

• Sharpe Ratio and Sortino Ratio: The Sharpe ratio measures excess return per unit of total risk, while the Sortino ratio focuses on downside risk, which is more suitable for assets like Bitcoin with high upside volatility.
• 2025 Data Comparison:
  • vs. S&P 500: Some data shows that Bitcoin’s Sharpe ratio (around 0.64) may be lower than the S&P 500 (around 0.82) in 2025, but in longer-term periods or specific periods, Bitcoin’s risk-adjusted returns have outperformed the stock market.
  • vs. Gold: In 2025, gold’s Sharpe ratio was exceptionally high (up to 3.3), outperforming Bitcoin in some market environments. Gold’s annual return also exceeded Bitcoin in 2025.
• Value Investor’s Implications: These data reveal Bitcoin’s core risk characteristic: high volatility. Even though long-term absolute returns are impressive, the extreme drawdowns test every investor’s risk tolerance. For value investors, this means that even if Bitcoin is judged to be undervalued, participation must be with small positions and strict risk management. Bitcoin’s role in a portfolio is more as a “catalyst” for asymmetric upside potential rather than a “stabilizer.”

Conclusion: Bitcoin as an Alternative Value Investment Asset

In summary, the report concludes:

1. Bitcoin’s Value Foundation is Real and Multi-Dimensional: Its value is not in the air but is rooted in digital scarcity, decentralized trust, powerful network effects, and a real-world energy-intensive production process. It represents a new paradigm of value storage independent of sovereign nations.
2. Traditional Value Investing Frameworks Need Reconstruction: Directly applying Graham’s cash flow discounting models to Bitcoin is counterproductive. However, the core ideas of value investing—understanding intrinsic value, utilizing market sentiment, and seeking a safety margin—remain relevant in Bitcoin investment.
3. Alternative Valuation Models Provide Rational Anchors: Production cost models provide a “soft floor” for Bitcoin’s value, while NVT ratios help assess market sentiment. By combining these models, diligent value investors can construct a rough value range to judge whether the current market price is overvalued, fairly valued, or undervalued.
4. 2025 Investment Value Analysis:
   • Conservative Value Investors: They may focus on production costs. In 2025, when the market price (e.g., 120,000) is significantly above the full AISC production cost (e.g., 100,000), the safety margin is limited, making investment appeal limited. They may wait for extreme panic, when prices fall near or below production costs, to consider entry.
   • Open-Minded Value Investors (or “Growth-Value Investors”): They may focus on network effects and long-term adoption trends. They view production costs as a lower bound of value, with the true value lying in its role as a global, decentralized value storage network. In their valuation models (e.g., incorporating Metcalfe’s Law and future adoption projections), 2025’s market price may still offer a reasonable “safety margin.”

Final Judgment: From a strict, traditional value investing perspective, due to the inability to precisely calculate its intrinsic value and its extreme volatility, Bitcoin is still “not investable” or at least “difficult to understand.” However, for investors willing to expand the boundaries of value investing and understand the new asset paradigm of the digital age, Bitcoin presents a unique, high-potential, non-symmetric investment opportunity.

Investing in Bitcoin is not a traditional value investment but a bet on the future role of digital technology and monetary paradigms. The key is for investors to clearly define their circle of competence, recognize that they are betting on the success of a new technological and monetary paradigm, and manage risk (e.g., small position sizing) to navigate its unprecedented uncertainty. By 2025, with institutional backing and regulatory clarity, the “bet” has become more certain, but its high-risk, high-return nature remains unchanged.