Bitcoin is named a store of value even if a financial institution or authority does not control it, has no ties with any country, and lacks a connection with a commodity. And considering the context, it’s one of the most valuable digital assets. Hard to believe it, right? How can a digital currency with no attachment to a physical asset reach the status of a store of value?
According to data from Binance Bitcoin is digital gold, causing investors to wonder if the statement carries any truth. Can a digital currency occupy a place similar to a precious metal?
To answer this question, it’s crucial first to figure out what a store of value is, regardless of its origin.
What is a store of value?
Stores of value can be assets, commodities, or currencies that maintain an increased value over an extensive period and appreciate in value as time passes instead of depreciating.
For an asset to gain the store of value status, it must meet particular requirements. However, some commodities are great stores of value, despite not meeting all factors. Here is a list of the most common requirements of a store of value.
Stores of value are accessible to everyone. The asset should be recognized as a store of value by most players in the market because the more people share this opinion, the stronger its position will be.
Stores of value don’t lose their value over time. Regardless of how much time passes, a store of value should maintain its value in the long run. Gold, for example, has been regarded as a valuable commodity for thousands of years.
Stores of value are easy to purchase and sell. Investors need to swap their funds for the store of value easily they’re interested in. For a commodity to maintain its status, it should be liquid enough for people to access it without any difficulty.
Stores of value are scarce. If you search a list of the most popular stores of value, you’ll easily notice that they have a limited supply because when there’s too much of something, its value gets diluted. Let’s take traditional money for example, not very scarce because the governments continue to print more. On the other hand, Bitcoin has a limited supply of 21 million tokens.
Stores of value can be bought and sold in portions. If an asset allows for division into smaller parts, it has more chances to become a store of value because people don’t have to buy or sell the whole thing. While it’s not as easy to divide Bitcoin as it’s to divide gold, it can still be traded in portions. A bitcoin has 100 million satoshis.
Stores of value can be easily transported. Investors find the stores of value that allow them to take them with them according to their needs more valuable. For example, real estate is listed among the stores of value, but it prevents the owners from moving it. Bitcoin, cryptocurrencies, art, and other similar commodities can be easily transported; hence, they are widely preferred.
Now, let’s evaluate Bitcoin’s ability to become a store of value
Bitcoin is the most popular digital currency used worldwide, and due to its global accessibility, scarcity, and decentralized nature, it’s often regarded as one of the most attractive solutions for those in search of an alternative store of value. However, some investors are reticent in assigning it this status because the asset is still new and continues to face some challenges.
However, before concluding, it’s crucial to evaluate it according to the criteria mentioned above to figure out if it can be named a store of value.
Bitcoin is a digital cryptocurrency. Therefore, it cannot be affected by wear and tear, as gold, let’s say that, can suffer from degradation. Bitcoin was created with the help of blockchain technology; hence, it will exist as long as blockchain continues to operate.
We also stated that stores of value are considered more valuable when they can be easily transported. Bitcoin meets this criterion, and if it would be to compare it to gold, it’s superior because it’s portable, due to its existence on the blockchain. You can store your Bitcoins digitally and access them anywhere on the planet, as long as you have Internet access.
Even if Bitcoin isn’t as divisible as other assets, it still allows users to trade smaller portions, so it meets another requirement in being listed as a store of value.
Bitcoin is quite a unique asset in the stores of value category because it is decentralized. Satoshi Nakamoto created the cryptocurrency so that anyone can use it, but no one can control it. And thanks to its existence on the blockchain, all network participants can see the operations, including it. Bitcoin transactions can be completely anonymous without the interference of third parties or authorities.
Bitcoin differs from traditional money because blockchain transactions cannot be reversed. Once the funds have been transferred, no one can interfere. When it comes to traditional assets, transactions can be reversed even months after closing the deal because the operations are often completed through the involvement of intermediaries. Additionally, due to its increased verifiability, it’s also resistant to censorship.
While it doesn’t have the same extensive utility as other stores of value, it has become more accessible to the broad public over the last few years. Some countries have even added it to their lists of legal tenders, strengthening its potential as a store of value.
Bitcoin is a scarce asset because there could ever be only 21 million coins. While other cryptocurrencies have an infinite supply, the pioneer will stop producing new coins once it reaches this cap.
What’s more to say?
Bitcoin might not have the same history as other stores of value, like gold, for example, but it provides investors with a unique set of benefits. Enthusiastic investors aren’t afraid to add it to their portfolios because it integrates characteristics of both traditional and modern stores of value.
