Is Bitcoin a Store of Value?
Bitcoin has always been thought of as a means of payment. It was designed as a medium of exchange used in making successful transactions. The above title is Bitcoin a store of value, attempts to compare Bitcoin to other valuable assets like gold and money.
Is Bitcoin money? Could Bitcoin be money? Does it have the ability to function as a unit of account and a medium of exchange? While some have said Bitcoin can be a store of value and even likened it to gold, it does not precisely fit into the same category as fiat.
You know, maybe when Satoshi created Bitcoin in 2018, he wanted a means of payment that world governments and systems could not control. A currency everyone can own a share and have a say in how it was managed or utilized, or perhaps he wanted to bridge the gap between the rich and the poor.
If we look at Bitcoin from the perspective above, then it will not have a store of value as we deem it fit. It is a digital currency and commodity, and it has not necessarily attained that status as a store of value.
When Nathaniel Popper’s book Digital Gold first came to light in 2015, people began to link Bitcoin as digital gold. The concept of digital gold is a safe asset like gold, silver, and other precious metal used as money. They have fulfilled the property as a medium of exchange, store of value, and unit of account.
Can Bitcoin follow in their footstep as a safe-haven asset?
While Bitcoin has some properties like scarcity, portability, and divisibility, it is too volatile and not as intrinsic as regular exchange mediums. For Bitcoin to be a store of value, it must exhibit some stability, which it has not. It needs to have a foreseeable depreciable value that can be trusted to fluctuate over time or with structural changes in economies.
What is a store of value?
A store of value is an asset that can retain its value in the short-term or long term, as the case may be. For example, let’s say you bought an ounce of gold today and kept it in the safe for a year. Would its value appreciate or depreciate in that time? Would you say it will still remain valuable as the first day you bought it?
Take diamond as another example; it does not have that pizzazz as gold and silver. The demand by individuals to own one gives it its value. Perhaps not as gold, but it is still valuable over time.
For an asset to make a good store of value, it must be durable. That is it will remain valuable over time, and secondly, scarcity.
Remember how a nickel would buy you a whole pack of sweets as a kid. Now it cannot do that because it has become less valuable over time.
Whether Bitcoin is a good store of value is straight forward, yes. However, its lack of stability and massive appreciation is a problem.
Therefore, until Bitcoin can attain stability over a long period and be widely accepted by the world as a valued asset, it cannot be a good store of value.
Why can Bitcoin be a store of value?
Bitcoin was created for the sole purpose as an alternative to money for easy transactions without any third-party systems or regulations. Even though it is not like gold, the following are why it is a good store of value.
It is a medium of exchange.
For any entity to serve this purpose, it must be accepted as a medium of exchange for goods and services. Furthermore, the user and the merchant must recognize it as a capable and trusted means. Though Bitcoin meets the criteria it is not backed by any sovereign entity that can enforce its use, it is still accepted, though.
For Bitcoin to be regarded as money, it must be portable, which it is. Bitcoin has better portability than gold and even cash. Additionally, it must be easy to move, transfer whether in small or large volumes. Today Bitcoin is the most portability exchange medium available for all types of transactions across the globe. Also, it does not have any physical footprint, which makes it even better.
However, until it is widely accepted, and the demand is equal across the board, its store of value is still questioned.
Bitcoin mining is limited to 21 million Bitcoins in circulation. The only way to increase this number is via consistent mining. Scarcity is the strongest point for a store of value that Bitcoin has over other currencies. To mine more, miners must learn to decode the cryptographic puzzle to earn new coins. Although the reward for mining diminishes with halving, it has kept a cap over the value during the years.
There are no other currency stores like Bitcoin except for gold. A good store of value must be cheap to store, will not depreciate and lose substance or perish in storage. Bitcoin fulfills all these points. Bitcoin as a digital currency increases its store of value because one will always have space to store it regardless of the volume. Even though the price value for Bitcoin drops to unimaginable numbers, it is the most manmade asset. Moreover, Bitcoin is young; who knows, it might attain the gold standard someday.
Bitcoin has a larger divisibility ratio than most fiat currencies. Although we are limited to 21 million Bitcoins, each Bitcoin can be divided into a hundred million smaller units or 0.00000001 Satoshi. This gives holders greater control of their Bitcoins and transactions. It also allows for easy buying and selling of Bitcoins.
The suitability of Bitcoin as a store of value depends on specific laid down the principle, as regards to money. Comparing Bitcoin to gold is absurd, but one cannot but come to think of it, can Bitcoin have the same store of value as gold.
In conclusion, its lack of fungibility and privacy are drawbacks. Ten years from now, the store of value might remain unclear until some issues like its high volatility are tackled.
Bitcoin remains a viable asset for individuals and economies. Whether it will be accepted as a currency is left to the imagination as only time will tell.
For now, Bitcoin is not a store of value even though it possesses some characteristics as other valuable assets.
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