The Value of Financial Products and Assets

Why are financial products such as saving accounts valuable? Why do we value financial securities such as bonds and stocks? Why do we value gold? Do financial assets have attributes that we appreciate and value beyond their price? Do financial products fulfill a need for individuals and communities beyond profit and wealth accumulation? These questions can seem redundant, but it is easy to lose sight of the intrinsic or instrumental value that some financial products and assets have. It is also completely understandable to just regard financial instruments as money-making vehicles with the sole purpose of enabling quick profits and accumulating money. Yet, did the money-making financial products and instruments come to be what they are today due to an intrinsic or instrumental value such vehicles have that individuals and communities value and need?

Exploring questions around why we value financial products and assets is crucial given the hyper financialization of everything and especially given the rise of new financial instruments such as bitcoin. While bitcoin’s foundation is rooted in it being a form of money and monetary design that allows for a codified monetary system and global payment mechanism that gets rid of middlemen, its “success” hasn’t been as a form of money and payment infrastructure per se. Rather, its “success” has been as an investment asset class that has tremendously appreciated in price. Its application and adoption have clearly revolved around it being a sort of investment or tradable financial instrument as opposed to a currency in the pure sense – bitcoin is perceived as an asset to put or invest money in. With that said, bitcoin has often been described as a “savings technology”, “digital gold”, and, more recently, as “digital capital”. Given these claims and analogies around bitcoin, it is worth exploring how it compares with popular financial instruments and assets that are typically used for short-term savings, long-term savings/investing, and gold. It is also worth examining if bitcoin holds or provides some "new" form of value or function beyond what popular financial products and assets offer. 

To be clear, we aren’t looking at value in terms of market price and how popular financial products and bitcoin compare from a financially technical perspective. What we are interested in exploring are the intrinsic attributes and functions of financial products and assets that make them valuable in the first place, and how these attributes compare with the features or functions that bitcoin offers. In other words, we are examining the intrinsic or instrumental value that popular financial products and assets have. Afterwards, we'll examine bitcoin’s intrinsic or instrumental value in relation to the financial products and assets discussed to see if there are any common themes or if bitcoin offers any "new" form of intrinsic or instrumental value as a stand-alone asset beyond the traditional products and assets discussed.

It would be worthwhile to briefly clarify what we mean by intrinsic and instrumental value, as the concept of intrinsic value for our purpose is not exactly the same as its traditional meaning in financial terminology. From a philosophical perspective, intrinsic value is typically used to suggest the value that an item has “in and of itself” or “in its own right”. It suggests that there are inherent properties in said thing that make it valuable “in and of itself” or as a stand-alone item. On the other hand, instrumental value suggests that the value of a certain item is in its ability to lead us to something that we value. The item does not necessarily have any intrinsic value in itself, but it is a tool or a vehicle that allows us to achieve or reach something that has intrinsic value or is inherently valuable – the value of an item is in it being a means to a valuable end. That said, one can claim that intrinsic value and instrumental value are sometimes confused and can overlap. For example, it can be argued that a cucumber has instrumental value because a cucumber has nutrients that nourish us and keep us healthy. In this perspective, the cucumber is not of value in and of itself, but it is valuable because it is a vegetable that we eat that nourishes us and keeps us healthy – health is what has intrinsic value in this case. From a different perspective, one can argue that the cucumber has intrinsic value because it contains nutrients or has inherent properties that make it valuable. The fact that the cucumber is made up of or contains such nutrients is what lends it its value "in and of itself" as an item in nature. Expanding on this example and debate is beyond the scope of our discussion, but the point here is that we can see how there might be opposing views as to what has intrinsic or instrumental value, or if anything has intrinsic value in the first place. In fact, there is a large body of study that argues that there is no such thing as intrinsic value and that everything has value based on its relation to something else – for further reading on intrinsic value see Intrinsic vs. Extrinsic Value.

In any case, for our purpose, we will be evaluating financial products and assets as vehicles that either have instrumental value and/or intrinsic value as described above: Do such financial products and assets allow us to achieve something we value? Do such financial products and assets have inherent properties that make them valuable in and of themselves? We will be using the terms intrinsic and instrumental value interchangeably at times, but we will also identify which financial products and assets would be considered of intrinsic or instrumental value when needed throughout the comparative analysis.

The goal of this comparative analysis is to examine the value of financial products and assets and to determine (1) if there are any shared themes in the attributes and value of the products and assets examined with each other and with bitcoin (2) if bitcoin holds any value in and of itself and if it provides value that fulfills a need beyond the products and assets analyzed (3) if the value in bitcoin is misplaced or, dare I say, non-existent. Through this comparative analysis, we’ll also be able to determine whether ascribing labels such as “savings technology”, “digital gold”, or “digital capital” to bitcoin is appropriate or a misnomer.

Part I of this essay series will be an analysis of the value of short-term saving products such as bank saving accounts and money market funds. Part II will be an analysis of assets such as financial securities (stocks and bonds) and other financial assets that typically make up long-term saving or investing portfolios. Part III will dig deep into the value of gold. Finally, Part IV will compare and contrast bitcoin with the financial products and assets evaluated in previous parts and will examine bitcoin as a standalone financial product to see if there is a “new” form of value that it provides that might be of intrinsic or instrumental value. Part IV will also be the conclusion of this comparative analysis essay series.