Is Bitcoin’s Value Due to Social Status it Brings?

It makes perfect sense to want to own something that is has increased in value 13-fold in the last year, but is part of Bitcoin’s value due to the social status it brings?

A study conducted by Bernstein Research has recently suggested just that. The analysts agree that limited supply plays a big role in the price surge, but the social standing that comes with owning Bitcoin may also be causing investors to join the hype:

“Bitcoins do not provide investors with cash-flows or other benefits, but the maximum supply of Bitcoins is fixed and so the price is driven by speculation on the potential demand for Bitcoin.”

A Veblen good

Just like high-end liquor, fancy cars and fashion brands, Bitcoin is acting like a Veblen good. The higher prices for certain goods can be attributed to the reinforcement of the social status attached to the product, something Bernstein calls “snob value.” The analysis added:

“In mid-2017, we conducted a consumer survey of 1,070 Chinese Premium Goods Consumers which showed that Veblen Demand is the third most important motivator of brand choice in brands.”

Demand Curve of a Veblen Good

Bitcoin is perceived as difficult to understand for those who aren’t “in the know.” Thus, owning Bitcoin immediately gives one that “snob value,” implying greater intelligence or insight.

Just like medicine…

In a strange, yet practical comparison, Bernstein compares Bitcoin to E.Jiao – traditional Chinese medicine derived from donkey skin…

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