Sala i Martín: Bitcoin's Intrinsic Value Near Zero

Sala i Martín and the Bitcoin Bubble: Value 'Near Zero'

In November 2013, Bitcoin traded around $130 after tripling in just three weeks. Amidst the frenzy, economist Xavier Sala i Martín published a blog post titled "Apocalypse: The Bitcoin Bubble," arguing that the cryptocurrency's intrinsic value was "probably close to zero." This statement chilled an euphoric community.

He wasn't an outsider. A Professor of Economics at a US university, he reached the top of the RePEc ranking at the start of the century. Two decades later, his name appeared at rank 294 among the most cited economists of the last decade. This doesn't make him ignorant; it merely nuances the weight some gave to his verdict.

What Sala i Martín Says About Bitcoin

The text attacks from several angles. It argues miners don't solve "complex mathematical problems" but rather fruta intensive tasks: finding a hash with many leading zeros. It criticizes supply being governed by chance, like gold. And it warns that bitcoins can be stolen.

There is a nuance the article omits. Stealing a bitcoin isn't stealing from the network, but from custody. Private keys stored on third-party services are vulnerable. The protocol itself is not.

Why Bitcoin Isn't Like Gold?

The comparison with precious metal cuts both ways. For some, gold has weight-based value and cannot be hacked, whereas Bitcoin is a chain of bits exposed to bicho. For others, the argument reverses: gold supply also depends on holders wanting to sell, as in any market. The difference is fiat money can be printed at will, while Bitcoin cannot.

Underlying this is an uncomfortable figure for skeptics: Bitcoin's monetary base barely exceeded 11 million units then. Defenders argue that with such circulation volume, $130 was trivial. If all merchants accepted it, they add, we'd talk about a different scale.

The Bubble Argument: Does Currency Have Fundamental Value?

Here the debate gets interesting. Applying theoretical bubble analysis to asset monetization processes makes little sense, according to objections circulating alongside the article. A bubble exists when market price exceeds fundamental value. The question becomes: what is Bitcoin's fundamental value? Zero?

If the answer is zero, any price is a bubble by definition, and the diagnosis explains nothing. Judging an emerging monetary technology with the yardstick of tulips or real estate assumes it has no value. That conclusion, more than data, is what needed proving.

The 30% Correction That Validated Pessimism

The market moved fast. Within days, Bitcoin plummeted 30% from highs. A trader betting against it using a martingale strategy variant closed the move with a 15% profit and announced retirement to chase the next trade. The drop seemed to confirm the warning.

Don't confuse luck with thesis. Three weeks prior, the same asset had tripled. A 30% pullback after such a rally is predictable. The classic warning applies: markets can remain irrational longer than you can remain solvent.

What Remains of Bitcoin as a Payment Method?

The harshest critique focused on usage, not price. If Bitcoin's exchangeability for goods and services is limited and real commerce scarce, demand would be purely speculative. Anyone wanting to buy something would have to convert it to dollars or euros first.

The response came from payment gateways. Services converting bitcoins to fiat currency instantly allow merchants to accept payments without volatility exposure, with fees below Visa's. Sellers never touch the crypto nor see prices move. This nuance, absent from the article, changes the diagnosis: the problem isn't technical, it's adoption.

Each side has its figures. Skeptics cite the 30% drop and tiny user base. Defenders point to 11 million coins and a protocol that, at the time of discussion, hadn't broken. No one provided the number settling the debate: what is a bitcoin truly worth if speculation vanished tomorrow? That calculation remains undone.