Bitcoin has made many people rich. The people invested in the digital currency early on and purchased it for a few dollars. Then, they sold it as its price soared.

But it made many people poor, too. It's the people who purchased the digital currency at a price in the tens of thousands of dollars on the way up and sold it on the way down.

What's next?

Will bitcoin make more people rich or send them to the poorhouse? It depends on whether bitcoin has any value.

Every investment instrument has two prices, one determined by Mr. Market — to use Benjamin Graham's allegory — and another determined by its intrinsic value. Mr. Market's valuation is based on the demand and supply conditions for the investment instrument in every trading session. These conditions can change from one moment to the next due to fundamental factors or simply due to investor perceptions. That's why Mr. Market's valuation of different assets is highly volatile.

The intrinsic valuation of investment instruments is based on the returns the investment instrument brings to its holders. A real estate investment, for instance, brings to its holders a flow of rental income over the holding period. Therefore, the intrinsic value of this investment is the discounted future cash flow of the net rental income. Likewise, the intrinsic value of equity investments is the discounted free cash flow they bring to stockholders.

While the two valuations may yield different results in the short term due to positive or negative investor sentiment, they tend to converge in the long term, according to the Mean Reversion Theory.

How do the two valuation theories apply to bitcoin?

Mr. Market's bitcoin valuation is all over the chart, driven by headlines that hype traders and investors over the promise of the digital currency to change the world. After reaching close to $68,000 in early November, it traded below $50,000 this weekend.

Why does Mr. Market think that bitcoin is worth tens of thousands of dollars?

"Because someone else is willing to pay that much," says Michal Cymbalisty, founder of Domination Finance. "But more in-depth and on a serious note, there is a capped supply, no georestrictions and mass adoption is coming at a lightning-fast pace. With nearly every fiat currency in the world backed by vaporware and with the supply drastically increasing because of COVID-19 recovery efforts, it is simply one of the best assets to hold, which is accessible by anyone, anywhere."

Still, as undergraduate students learn in the first economics class, a limited supply alone doesn't make something valuable. Besides, the idea of limited supply isn't accurate, as bitcoin is competing with other currencies, which expands the "horizontal supply of cryptocurrencies."

What about bitcoin's intrinsic valuation?

"Nobody knows the 'value' of bitcoin," says Ric Edelman, founder of the Digital Assets Council of Financial Professionals. "Classic market valuation models examine a company's products, revenues and profits. They consider the quality of the employees (especially management) and compare the market values of competing companies that have recently been sold. But bitcoin is not a company. It has no product, employees, revenues or profits. This is why people like Jamie Dimon say bitcoin has 'no intrinsic value.' "

Robert R. Johnson, a professor of finance at Creighton University, is on the same page.

"The major disadvantage in speculating in bitcoin or any other cryptocurrency is that bitcoin has no intrinsic (real) value. BTC is 'worth' $57,000 because that is what people are willing to pay for it," Johnson said. "One cannot invest in BTC. One can only speculate in BTC. Unlike a stock or a bond, it promises no cash flows to the holder."

That's why Edelman reverts back to Mr. Market's valuation.

"So, instead of trying to ascertain the value, do something far easier and more relevant: look at the price. bitcoin's price is transparent," he added. "The price is set by the marketplace: buyers and sellers agree, and as their views change, so does the price."

But that sounds like the Greater Fool Theory, according to Johnson.

"It is the 'Tulipomania' of the 21st century. But, at least with tulip bulbs, you can plant them and enjoy a pretty flower. In the past, I have used quotes by Warren Buffett and Charlie Munger to buttress my point. Buffett has referred to BTC as 'rat poison squared,' and Munger has referred to it as a 'turd.' "

It's well-known what happened to Tulipomania and the other famous bubbles when the market price returned to intrinsic value, which was nowhere to be found.