Intrinsic value, a measure of volatility and risk

Intrinsic value is a measure of what an asset is worth. This measure is arrived at through an objective calculation or complex financial model, rather than using the currently trading market price of that asset.

Economic and finance principles state that whilst the price of an asset might fluctuate dramatically, it will always come back to the intrinsic value of the asset over time.

Intrinsic value can also be a good measure of volatility and risk. A current example is Bitcoin and other cryptocurrencies. Bitcoin arguably has extraordinarily little to no intrinsic value. Thus, the current valuation of 1 bitcoin at almost $60,000 AUD demonstrates that Bitcoin is purchased on pure speculation. Therefore, investing in Bitcoin carries extreme risk and price volatility.

Be wary of purchasing assets that have intrinsic values far below their trading market price. If you decide to purchase these assets, do so knowing that you could lose your money.