Bitcoin’s value-based service has become increasingly important for investors and institutions alike. According to Matt Hougan, Chief Investment Officer at Bitwise, the world’s leading crypto asset manager, Bitcoin’s fundamental worth doesn’t stem from speculation or market hype—it originates from the unique service it provides to individuals and institutions seeking financial sovereignty.
In a recent memo to clients, Hougan challenged conventional thinking about cryptocurrency valuation by reframing Bitcoin not as a traditional asset but as a digital wealth storage service. This perspective shift represents a fundamental rethinking of how we evaluate Bitcoin’s market position and long-term potential, especially as the asset recently experienced volatility, falling from its all-time high of approximately $126,000 to below $90,000 in late 2024.
Understanding this service-based value proposition becomes critical as Bitcoin’s value-based service continues to accelerate, with major financial players, sovereign wealth funds, and asset managers increasingly recognising Bitcoin’s role in modern portfolio strategies. This article explores Bitwise’s groundbreaking framework for understanding Bitcoin’s intrinsic value and what it means for the future of digital assets.
The Service Framework: How Bitcoin Creates Value
Bitcoin as a Digital Wealth Storage Service
At the core of Hougan’s argument lies a simple but powerful concept: Bitcoin’s value-based service as a decentralised, digital wealth storage mechanism. Unlike traditional financial systems that rely on banks, governments, or corporate intermediaries, Bitcoin enables individuals and institutions to store wealth in a purely digital format without requiring permission or oversight from any central authority.
This digital wealth storage capability represents more than just a technological innovation—it addresses a fundamental need in an increasingly digital and interconnected global economy. As governments worldwide accumulate unprecedented debt levels and monetary policies create inflationary pressures, the demand for alternative wealth preservation methods has intensified dramatically.
The Bitcoin’s value-based service operating here mirrors those of any valuable service: as more people recognise the need for non-sovereign, censorship-resistant wealth storage, the value of accessing that service increases proportionally. This creates a natural scarcity premium, particularly given Bitcoin’s fixed supply of 21 million coins, which cannot be expanded regardless of demand.
The Microsoft Comparison: Understanding Demand-Driven Value
To illustrate his point, Hougan drew a compelling comparison between Bitcoin and Microsoft, one of the world’s most valuable companies. Both assets, he argues, derive their value fundamentally from the services they provide, though they operate through different mechanisms.
Microsoft’s business model centres on delivering software services—Word, Excel, Teams, and cloud computing infrastructure—that millions of users and businesses depend on daily. The company monetises these services through subscriptions, licensing fees, and ongoing customer relationships. Microsoft’s stock value directly correlates with how many people want and pay for these services.
Bitcoin operates on similar demand principles but with a crucial difference: there’s no company behind it, no subscription model, and no recurring fees. The only way to access Bitcoin’s wealth storage service is by purchasing and holding the asset itself. This fundamental distinction creates a unique value proposition where increasing demand for the service directly translates to increased asset value without any corporate intermediary capturing revenue.
As Hougan emphasised, “The more people who want Bitcoin’s service, the more valuable it becomes; if fewer people wanted its service, the value would be lower; if no one wanted Bitcoin’s service, its value would be zero.” This straightforward relationship between utility and value makes Bitcoin’s valuation framework surprisingly transparent compared to many traditional assets.
Institutional Bitcoin Adoption: The Growing Demand Signal
The Rise of Institutional Interest
The past decade has witnessed remarkable growth in institutional Bitcoin adoption, fundamentally transforming the cryptocurrency from a fringe digital experiment into a legitimate asset class. Major institutions, including pension funds, endowments, sovereign wealth funds, and asset management firms, have increasingly allocated capital to Bitcoin, recognising its potential as a portfolio diversification tool and inflation hedge.
This institutional momentum reflects growing recognition of Bitcoin’s cryptocurrency service utility. Financial institutions aren’t simply speculating on price movements—they’re seeking exposure to Bitcoin’s unique characteristics: portability, divisibility, verifiability, and most importantly, its independence from traditional financial systems.
According to recent market data, Bitcoin spot ETFs have attracted over $54 billion in net inflows since their approval in January 2024. BlackRock’s iShares Bitcoin Trust (IBIT) alone has become one of the most successful ETF launches in history, demonstrating unprecedented institutional appetite for regulated Bitcoin exposure. This represents far more than a passing trend—it signals a structural shift in how traditional finance views digital assets.
Why Institutions Choose Bitcoin’s Service
Several factors drive institutional interest in Bitcoin’s digital wealth storage capabilities:
Portfolio Diversification: Bitcoin’s historically low correlation with traditional assets like stocks and bonds makes it an attractive diversification tool. During periods when traditional markets struggle, Bitcoin can provide uncorrelated returns that enhance overall portfolio performance.
Inflation Protection: With central banks maintaining expansive monetary policies and government debt reaching historic levels, institutions increasingly view Bitcoin as a hedge against currency debasement. Its fixed supply makes it inherently resistant to inflationary pressures that erode fiat currency purchasing power.
Technological Infrastructure: The maturation of custody solutions, regulatory frameworks, and trading infrastructure has removed many technical barriers that previously prevented institutional participation. Companies like Coinbase Custody, Anchorage Digital, and Zodia Custody now offer bank-grade security for digital asset storage.
Regulatory Clarity: Evolving regulatory frameworks, particularly in the United States and European Union, have provided greater certainty about Bitcoin’s legal status and compliance requirements. This clarity reduces regulatory risk and enables more conservative institutional investors to participate.
24/7 Global Markets: Unlike traditional financial markets with limited trading hours, Bitcoin trades continuously across global markets, providing liquidity and price discovery at all times. This accessibility appeals to international institutions operating across time zones.
Bitcoin Demand Dynamics: The Value Mechanism
The Scarcity-Service Intersection
The relationship between Bitcoin’s service utility and its fixed supply creates unique Bitcoin demand dynamics that distinguish it from virtually all other assets. While companies like Microsoft can theoretically issue unlimited shares or expand service capacity, Bitcoin’s supply remains permanently capped at 21 million coins through its underlying protocol.
This scarcity amplifies the value proposition of Bitcoin’s service. As global demand for non-sovereign wealth storage grows—driven by factors like increasing digitisation, rising debt levels, geopolitical tensions, and financial system uncertainty—the limited supply of Bitcoin means each unit becomes progressively more valuable.
The mathematical elegance of this model creates predictable long-term dynamics: if demand for Bitcoin’s wealth storage service increases while supply remains constant, the price must rise to clear the market. This differs fundamentally from traditional services, where increased demand typically leads to capacity expansion and potential price competition.
Historical Performance as Demand Evidence
Hougan pointed to Bitcoin’s approximate 28,000% appreciation over the past decade as concrete evidence of rising demand for its service. This extraordinary performance reflects growing recognition of Bitcoin’s utility rather than mere speculation. Each price surge corresponds to waves of new adopters—first individual enthusiasts, then institutional investors, and increasingly, sovereign entities—seeking access to Bitcoin’s unique capabilities.
The cyclical nature of Bitcoin’s price movements, often tied to its four-year halving events, further demonstrates these demand dynamics. Each halving reduces the rate of new Bitcoin creation, effectively tightening supply while demand continues growing. This supply-demand imbalance historically produces significant price appreciation in subsequent periods.
Bitcoin vs Microsoft: Key Differences and Similarities
Shared Demand Principles
The Bitcoin vs Microsoft comparison reveals fundamental similarities in how both assets derive value from service demand. Both represent technological innovations that address specific user needs—Microsoft through productivity software, Bitcoin through financial sovereignty. Both have achieved network effects where increased adoption enhances value for all participants.
In both cases, the value proposition remains straightforward: as more users demand the service, the asset providing that service becomes more valuable. This demand-driven valuation framework provides a logical basis for understanding price movements beyond mere technical analysis or market sentiment.
Critical Distinctions
Despite these similarities, crucial differences distinguish Bitcoin’s value model from traditional companies:
No Corporate Intermediary: Microsoft captures service revenue through its corporate structure, distributing profits to shareholders through dividends and buybacks. Bitcoin has no company to extract value—all appreciation accrues directly to asset holders.
Access Mechanism: Microsoft services can be rented, subscribed to, or licensed without owning company stock. Bitcoin’s service can only be accessed by purchasing and holding the asset itself, creating direct alignment between service demand and asset value.
Supply Dynamics: Microsoft can issue additional shares, expand operations, or adjust pricing strategies in response to market conditions. Bitcoin’s fixed supply prevents any supply-side response to increased demand, amplifying price effects.
Governance Structure: Microsoft’s board and management make strategic decisions affecting the company’s direction. Bitcoin’s decentralised governance through consensus mechanisms means no central authority can unilaterally change its fundamental properties.
Revenue Model: Microsoft generates ongoing cash flows from operations, providing traditional valuation metrics like P/E ratios. Bitcoin produces no cash flows, making its value entirely dependent on service demand and scarcity.
The Future of Digital Wealth Storage
Growing Demand Drivers
Several powerful trends suggest an accelerating demand for Bitcoin’s digital wealth storage service in the coming years:
Global Debt Accumulation: Government debt levels in major economies continue reaching new highs, raising concerns about long-term currency stability and creating demand for non-sovereign alternatives.
Financial System Digitisation: As commerce, banking, and investment migrate increasingly online, demand for digitally native value storage solutions grows naturally.
Geopolitical Uncertainty: Rising tensions between major powers, concerns about asset freezes or capital controls, and the desire for financial privacy drive interest in censorship-resistant wealth storage.
Generational Wealth Transfer: Younger generations, more comfortable with digital technology and sceptical of traditional institutions, are inheriting substantial wealth, potentially redirecting capital toward Bitcoin.
Central Bank Digital Currencies: As governments develop CBDCs, concerns about financial surveillance and monetary control may paradoxically increase demand for Bitcoin’s permissionless alternative.
Market Volatility vs. Long-Term Value
Hougan’s framework helps investors distinguish between short-term price volatility and long-term value creation. While Bitcoin experienced a significant pullback from its late 2024 highs—falling approximately 27.5% from nearly $126,000 to below $90,000—this doesn’t fundamentally alter the demand for its underlying service.
Short-term price movements reflect various factors: macroeconomic conditions, regulatory developments, market sentiment, and trading dynamics. However, the long-term value proposition remains anchored in the growing global need for non-sovereign wealth storage solutions that Bitcoin uniquely provides.
Institutional Strategies for Bitcoin Exposure
Portfolio Allocation Approaches
Institutions adopting Bitcoin typically employ measured allocation strategies that balance potential benefits against volatility risks:
Small Percentage Allocations: Many institutions begin with 1-5% portfolio allocations, providing meaningful exposure while limiting downside risk. This approach allows institutions to benefit from Bitcoin’s potential appreciation without concentrating excessive risk.
Strategic Reserve Holdings: Some entities, including sovereign wealth funds and forward-thinking treasuries, view Bitcoin as a strategic reserve asset similar to gold, holding for long-term appreciation and diversification.
ETF Vehicles: The approval of spot Bitcoin ETFs in major markets has enabled institutions to gain exposure through familiar, regulated investment vehicles without directly handling custody and security concerns.
Risk Management Frameworks: Sophisticated institutions employ derivatives, options strategies, and hedging techniques to manage Bitcoin’s volatility while maintaining exposure to its long-term growth potential.
Infrastructure and Custody Considerations
Institutional Bitcoin adoption requires robust infrastructure addressing security, compliance, and operational concerns:
Qualified custodians providing segregated storage, multi-signature security, insurance coverage, and regular audits have become essential. Firms like Coinbase Custody, Anchorage Digital, and traditional financial institutions offering crypto custody services enable institutions to hold Bitcoin safely while meeting fiduciary responsibilities.
Regulatory compliance infrastructure, including anti-money laundering (AML) procedures, know-your-customer (KYC) protocols, and reporting systems, allows institutions to participate while satisfying regulatory obligations.
Real-World Applications and Use Cases
Beyond Speculation: Practical Bitcoin Service Use
The cryptocurrency service utility extends far beyond investment speculation:
Cross-Border Payments: Bitcoin enables rapid, low-cost international value transfer without intermediaries, particularly valuable in regions with limited banking infrastructure or capital controls.
Treasury Management: Companies increasingly hold Bitcoin on balance sheets as a treasury reserve asset, viewing it as superior to cash that loses purchasing power through inflation.
Financial Inclusion: Bitcoin provides banking services to unbanked populations globally, offering wealth storage and transaction capabilities through nothing more than internet-connected devices.
Wealth Preservation: Individuals in countries experiencing currency devaluation or economic instability use Bitcoin to preserve purchasing power and protect savings.
Programmable Money: Bitcoin’s underlying technology enables advanced financial applications, smart contracts, and automated payment systems that traditional finance cannot easily replicate.
Addressing Common Concerns and Misconceptions
Volatility and Risk Considerations
Critics frequently cite Bitcoin’s price volatility as evidence against its value proposition. However, viewing Bitcoin through the Bitcoin value service model framework provides a perspective on this concern.
Volatility reflects Bitcoin’s relatively small market capitalisation compared to traditional assets and its ongoing price discovery process as adoption grows. As the market matures and institutional participation increases, historical data suggests that volatility gradually decreases. Bitcoin’s volatility has declined substantially from its early years while remaining higher than traditional assets—a predictable characteristic of an emerging asset class experiencing rapid adoption.
More importantly, volatility represents short-term price fluctuation rather than fundamental service demand. The underlying need for digital wealth storage solutions continues to grow regardless of daily price movements.
Environmental Considerations
Bitcoin mining’s energy consumption represents another frequent criticism. However, the industry has made substantial progress:
Renewable energy usage in Bitcoin mining has increased significantly, with many mining operations specifically locating near renewable energy sources that would otherwise be curtailed. Some estimates suggest over 50% of Bitcoin mining now uses sustainable energy.
Mining’s role in stabilising electrical grids by providing flexible demand that can shut down during peak usage periods offers societal benefits beyond Bitcoin itself.
The energy used secures a global financial network serving hundreds of millions of users, comparable to energy expenditure in traditional financial systems.
Technical Analysis: Bitcoin’s Network Fundamentals
Network Security and Decentralisation
Bitcoin’s value as a digital wealth storage service depends fundamentally on its network security and decentralisation:
Hash Rate: Bitcoin’s computational security, measured by hash rate, has grown exponentially over time, making the network increasingly resistant to attacks. This growing security enhances confidence in Bitcoin’s ability to preserve wealth long-term.
Node Distribution: Thousands of nodes worldwide maintain Bitcoin’s blockchain, ensuring no single entity can control or censor transactions. This decentralisation provides the censorship resistance that makes Bitcoin valuable as a non-sovereign wealth storage solution.
Protocol Stability: Bitcoin’s conservative approach to protocol changes, requiring broad consensus, provides stability and predictability that institutional adopters value.
Transaction Capacity and Layer-2 Solutions
While Bitcoin’s base layer prioritises security and decentralisation over transaction speed, layer-2 solutions like the Lightning Network provide scalability:
Lightning Network enables near-instant, low-cost transactions while settling periodically on Bitcoin’s base layer. This allows Bitcoin to function efficiently for both large-value storage and everyday transactions.
Other layer-2 developments continue expanding Bitcoin’s utility without compromising its core security model.
Regulatory Landscape and Future Outlook
Global Regulatory Developments
The regulatory environment for Bitcoin continues evolving favorably:
United States: The SEC’s approval of spot Bitcoin ETFs marked a watershed moment, legitimising Bitcoin within regulated investment frameworks. Ongoing efforts to establish clear regulatory frameworks continue, with the current administration showing increased openness to cryptocurrency innovation.
European Union: The Markets in Crypto-Assets (MiCA) regulation provides comprehensive regulatory clarity across EU member states, harmonising requirements and reducing compliance uncertainty for institutions.
Asia-Pacific: Singapore, Hong Kong, and other financial centres have developed sophisticated regulatory frameworks balancing innovation with investor protection.
Middle East: The UAE, particularly through financial free zones like ADGM, has emerged as a leading jurisdiction for institutional cryptocurrency adoption with progressive regulatory approaches.
Future Market Predictions
Based on current trends in institutional Bitcoin adoption and demand for digital wealth storage services, several predictions emerge:
Continued institutional allocation growth as more pension funds, endowments, and sovereign wealth funds add Bitcoin exposure to diversify portfolios and hedge macroeconomic risks.
Increased correlation between Bitcoin adoption and global debt levels, as concerns about currency stability drive demand for non-sovereign alternatives.
Development of more sophisticated Bitcoin financial products, including structured products, derivatives, and yield-generating strategies that appeal to institutional investors.
Greater integration between traditional finance and Bitcoin infrastructure, making cryptocurrency exposure as routine as equity or bond holdings.
Potential central bank and sovereign Bitcoin accumulation, with some nations building strategic Bitcoin reserves alongside traditional reserve assets.
Practical Implications for Investors
Individual Investment Considerations
For individual investors seeking exposure to Bitcoin’s cryptocurrency service utility:
Education First: Understanding Bitcoin’s underlying technology, value proposition, and risk factors remains essential before investing. The service-based framework provides a rational basis for evaluating Bitcoin’s long-term potential.
Long-Term Perspective: Bitcoin’s volatility makes short-term timing difficult, but its service demand trajectory suggests long-term holders benefit most from appreciation. Dollar-cost averaging strategies can reduce timing risk.
Appropriate Position Sizing: Most financial advisors recommend limiting Bitcoin exposure to percentages investors can afford to lose, typically suggesting single-digit portfolio percentages for most individuals.
Secure Storage: Understanding custody options—from exchange accounts to hardware wallets to institutional custody—and implementing appropriate security measures protects holdings.
Tax Considerations: Understanding cryptocurrency tax treatment in your jurisdiction and maintaining adequate records ensures compliance with reporting requirements.
Institutional Implementation
Institutions considering Bitcoin adoption should:
Develop clear investment theses explaining how Bitcoin fits within broader portfolio strategies and risk management frameworks.
Establish governance procedures for cryptocurrency investments, including decision-making protocols, risk limits, and oversight responsibilities.
Partner with qualified service providers for custody, trading, compliance, and reporting functions that meet institutional standards.
Implement gradual allocation strategies that allow learning and adjustment while building positions over time.
Conclusion
Understanding that Bitcoin’s value is based on its service provides a rational framework for evaluating this revolutionary asset class. Rather than viewing Bitcoin as merely digital gold or a speculative gamble, recognising it as a digital wealth storage service addresses a genuine global need for non-sovereign, censorship-resistant value preservation.
As Matt Hougan of Bitwise articulates, Bitcoin operates on straightforward demand principles: the more individuals and institutions seek its unique wealth storage capabilities, the more valuable the asset becomes. This isn’t speculation—it’s basic economics applied to a genuinely innovative financial service.
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