This embodies perfectly the difference between the two concepts. We must never confuse price for value. The fact that some marginal buyer is willing to give 8000 dollar for a Bitcoin does not make it worth this much. It merely means that there is a marginal buyer who thinks this is a good deal.
To understand value, we have to look at what something is. We have to understand its qualities. Bitcoin is a token that gives access to the Bitcoin network. There are 21 million Bitcoins, meaning that the Bitcoin network is currently priced at about 160 billion dollars. But is the network really worth this much? I don't think so.
Gold, on the other hand, is a metal. It can be fashioned into jewelry. A gold ring containing 3 grams of gold will fetch a price upwards of 120 dollar. Is this a reasonable price? I personally think so. Others may disagree. However, the point here is not to sell Bitcoin or gold but to illustrate how value is determined.
The trick to investing is to judge value relative to price. When prices are low relative to what something is worth, it's time to buy. When prices are high relative to what something is worth, it's time to sell.
Warren Buffett
By Mark Hirschey - Work of Mark Hirschey, CC BY-SA 2.0, Link
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