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**Table Of Content** - Content - Conclusion - FAQ - You May Also Like - External Links Precious metals like gold and silver are often thought of as safe-haven assets. Individuals gravitate toward these investments as a hedge against the volatility of more traditional markets. Bitcoin's future value relative to other assets remains a hotly contested topic. This essay will examine the key arguments for and against Bitcoin as a store of value. **What is a store of value?** Investing in a store of value is prudent since such an asset is likely to maintain its purchasing power over time. It's safe to say that the value of something bought as a store of value today won't decrease over time. You anticipate that the asset's value will remain stable in the future, if not increase. Gold or silver are examples of such a "safe haven" asset. Several factors, which we'll discuss below, explain why these have always been valuable. **What makes a good store of value?** Let's look at what can constitute a bad store of value before we try to figure out what makes a good one. It stands to reason that something needs to be sturdy if we want it to last for a long time. The first example is food. Since we need food to stay alive, there is a certain significance to fruits like apples and bananas. When supplies of food are low, things like these are likely to be extremely useful. Unfortunately, this doesn't make them a reliable investment. If you lock them up in a safe for several years, their value will naturally decrease. Okay, but what about long-lasting things that are valued in and of themselves? Some dry pasta, perhaps? That's preferable in the long term, but it still might not be worth anything. Pasta can be made at a low cost with a variety of ingredients.There is no barrier to entry for producers looking to flood the market with more pasta, driving down the value of the pasta already in circulation. Therefore, something must be scarce if it is to retain its value. Some people believe that fiat currencies (such as the dollar, euro, or yen) are a safe way to hold their money because they don't lose value over time. However, when more are printed, their purchasing power decreases dramatically, making them terrible long-term investments (just like the pasta). While it may seem like a good idea at the time, hiding your life savings under the mattress for twenty years will result in a significant loss of value. With $100,000 in 2000, more could be purchased than with the same amount in the present. As a result of inflation, the cost of living has gone up. The practise of governments printing more money is a common contributor to the inflationary expansion of the money supply. Say, for the sake of argument, that you control $25 billion of a total supply of $100 billion. Eventually, the government chooses to print more money, perhaps $800 billion, to boost the economy. Suddenly, your share of the pie shrank to 3%. Since more money is now floating around, it stands to reason that your portion isn't worth as much as it once was. Just like our homemade pasta, it doesn't take much to make a dollar. The aforementioned is possible in a few days' time. It should be difficult to flood the market with fresh units if they have a good store of value. To rephrase, you should experience minimal, if any, loss of your share of the pie. When looking at gold as an example, we know that there is a limited amount available. Also, we're well aware of how challenging it is to mine for In other words, it's not as simple as turning on a printer to produce additional gold if there's an unexpected spike in demand. Like always, it must be mined from the earth's surface. Even though demand has risen, supply cannot be increased significantly to meet it. **The case for Bitcoin as a store of value** Bitcoin's early backers said that the cryptocurrency was more like "digital gold" than basic digital currency. Many Bitcoin proponents have repeated this argument in recent years. Bitcoin's proponents claim it's a safe investment because of its potential as a long-term store of value. If you want your money to retain its purchasing power over time, according to the proponents of this idea, Bitcoin is the way to go. Bitcoin's price swings dramatically. Many people regard an asset that can lose 20% of its value in a day as a safe haven, which seems counterintuitive. Despite its multiple declines, it continues to lead all asset classes. If Bitcoin is so great, why is it being considered a savings asset? **Scarcity** The fact that Bitcoin exists in limited supply is one of the strongest arguments in favour of the store of value hypothesis. You may recall from our primer on bitcoin that the total supply of bitcoins will be fixed at 21,000,000. The protocol ensures this by including a strict requirement in its code. New coins can only be generated through mining, a procedure that is similar to mining for gold. Bitcoin miners, on the other hand, don't need to bore holes in the ground so much as they do to solve a cryptographic riddle. They can make new money by doing this. Due to occurrences known as "halvings," the payout gradually decreases over time. In case you figured that this effectively halved the award, you would be correct. In the beginning of the Bitcoin network's existence, any miner who successfully generated a valid block was rewarded with fifty bitcoins. first halved to a value of 25 BTC in 2016. Following another reduction to 12.5 BTC, the next halving will reduce the miner's payout to 6.25 BTC. It will take another century or more before the last coin fraction enters circulation using this method. Let’s represent this similarly to our fiat currency example from previously. Suppose you bought 25% of the Bitcoin supply (i.e., 5,250,000 coins) several years ago. When you got these coins, you knew that your percentage would remain the same because there’s no entity capable of adding more coins to the system. Government as we know it does not exist, at least not in this place (more on this shortly). That means that a person who purchased 25% of the total available supply in 2010 and held on to it until now still possesses 25% of the total. **Decentralization** You could be thinking, "But it's open-source software!" I can duplicate the code and construct my own version with an additional 100 million coins. That's entirely feasible. The scenario is that you have a copy of the programme, have made the necessary modifications, and are now operating a node. At this time, it looks like everything is operating normally. However, there is a catch: there are no other nodes to which you can link. Because of the recent changes you made to your programme, you have been mostly ignored by the Bitcoin community. You've created a fork, and the software you're using is no longer the Bitcoin that everyone else uses. You may as well have taken a picture of the Mona Lisa and then said there were two of her. You can convince yourself that that’s the case, but good luck convincing anyone else. We implied that Bitcoin functioned as a decentralised government. All of the people who use the programme collectively form that government. When the vast majority of users support a modification, the protocol can be updated. It would be difficult to persuade the majority to devalue their assets by adding money. In their current form, even seemingly small features require years to attain network-wide acceptance. As it grows in size, pressing adjustments will become increasingly difficult.Holders can, therefore, be pretty confident that the supply won’t be exaggerated. Despite being created by humans, Bitcoin operates more like a natural resource than a piece of code that can be altered at will because of the decentralised nature of the network. **The properties of good money** According to those who believe in the store of value theory, bitcoin has several desirable qualities as money. It's a rare digital resource that also shares several other features with currencies from all around the world and throughout history. Gold has been used as money across civilizations since their inception. There are a handful of explanations behind this. We have covered longevity and scarcity at length. These things can be useful assets, but they aren't always appropriate monetary units. For that, you want fungibility, mobility, and divisibility. **Fungibility** This indistinguishability between units is known as "fungibility." With gold, you can take any two ounces, and they’ll be worth the same. This also applies to liquid assets like stocks and money. It makes no difference which unit you're holding; it'll have the same value as any other of the same type. The fungibility of Bitcoin is a complex issue. It would be ideal if it didn't matter which side of the coin you were holding.For the most part, 1 BTC is equivalent to 1 USD. Where it gets tricky is when you realise that each unit can be linked back to past transactions. There are situations where businesses blacklist funds that they feel have been involved in illicit acts, even if the holder gets them afterwards. If it doesn't matter, why worry about it? I'm not sure why that would be the case. Neither you nor the store owner can tell where a dollar bill was spent three transactions before you paid with it. In this system, new banknotes have the same value as worn ones, and there is no idea of transaction history. Yet, in the worst-case scenario, the older bitcoins (with longer histories) may be sold for less than the newer bitcoins. It's debatable whether this is the greatest danger to Bitcoin or not; opinions vary. For now, anyway, Bitcoin is functionally fungible. There have only been occasional occurrences of coins being frozen due to suspicious histories. **Portability** Portability signifies the ease of moving an item. $10,000 in $100 bills? easy enough to move around. What, oil costs $10,000? No, not at all. Small size is essential for functional money. To facilitate the exchange of products and services between people, it is necessary that the medium of exchange be portable. Gold has historically been excellent in this aspect. The value of a single conventional gold coin was close to $1,500 at the time this article was written. Since you probably won't be making any purchases greater than an ounce of gold, lower denominations are even more convenient. Bitcoin is actually superior to precious metals when it comes to transportability. There is no trace of anything left behind at all. A hardware gadget the size of your palm may hold trillions of dollars' worth of wealth. It takes a lot of work and money to move gold worth a billion dollars, which is currently over 20 metric tons. Even with cash, you would need to carry many pallets of $100 bills. It costs less than $1 to send the same amount almost anywhere in the world using Bitcoin. **Divisibility** One more crucial feature of a currency is its divisibility, or its ability to be subdivided into smaller parts. When dealing with gold, a single ounce coin can be divided in half to get two separate half-ounce coins. The gold content is unaffected, but you may lose a premium if you damage the attractive design depicting an eagle or buffalo. Repeatedly slicing your half-ounce unit will give you the ability to create lower denominations. Bitcoin also excels at being easily divisible. Only twenty-one million coins have been minted, yet each one has a hundred million fractions (satoshis). This allows consumers a tremendous level of control over their transactions, as they can define an amount to transfer up to eight decimal places. Bitcoin’s divisibility also makes it easier for small investors to buy fractions of BTC. **Store of Value, Medium of Exchange, and Unit of Account** The mood is mixed on Bitcoin’s current role. Many people think of Bitcoin solely in monetary terms, as a means of exchanging one set of money for another. We’ll get into this in the following section, but this notion is contrary to what many store of value proponents advocate. According to SoV supporters, Bitcoin needs to go through a transition period before it can replace all other currencies. It starts off as a collectible (which is where we are, perhaps) because it's shown to be useful and secure, but it's not widely used. The majority of its readers are enthusiasts and gamblers. It can't develop into a reliable value store until its population is better educated, institutional infrastructure is in place, and people have faith in the economy's ability to preserve wealth. There are those who think it's already there. Due to Gresham's law, which asserts that "bad money drives out good money," Bitcoin is not extensively used at the moment. The implication is that given the choice between two forms of currency, people will choose to spend the lower-quality one and save the higher-quality one. Though they don't have much faith in fiat currency, Bitcoin users nonetheless choose to spend them. Bitcoin holders (HODLers) are certain that their investment will increase in value over time. Bitcoin's price and liquidity will stabilise and attract new users if the network keeps expanding. If it's more stable, people won't be as compelled to hoard it in the hopes of making bigger profits down the line. So we should expect it to be used a lot more in business and daily payments as a robust medium of exchange. With more people using it, the price will remain relatively constant. At last, Bitcoin will be used as a standard of value against which other assets can be measured and valued. In the same way that a gallon of oil may cost $4 in the current monetary system, its value in a Bitcoin-dominated economy would be measured in bitcoins. If these three monetary milestones are completed, proponents envision a future where Bitcoin has become a new standard that displaces the currencies used today. **The case against Bitcoin as a store of value** The ideas stated in the previous section may sound entirely rational to some and like craziness to others. Several people, including Bitcoin enthusiasts and cryptocurrency sceptics, have certain issues with the concept of Bitcoin as "digital gold." **Bitcoin as digital cash** If a debate develops, many people immediately reference the Bitcoin white paper. They believe it is obvious that Satoshi conceived of Bitcoin as a currency to be used. In fact, it’s in the very title of the paper: "Bitcoin Is a P2P Electronic Cash System." The reasoning goes like this: if people don't spend their bitcoins, they have no reason to value them. You're doing more harm than good to the adoption process by hoarding them. If Bitcoin is not generally accepted as a kind of digital currency, its central thesis will be driven not by practicality but by speculation. These ideological conflicts led to a significant fork in 2017. In order to reduce transaction costs, a minority of Bitcoin users advocated for a system that used larger blocks. As the original network becomes more congested, the price of a transaction could skyrocket, pricing many users out of making lower-value transactions. You shouldn't use coins for a $3 purchase if the average cost is $10. Bitcoin Cash is the name given to the forked network. The original network pushed out its own upgrade around the time, known as SegWit. SegWit did nominally enhance the capacity of the blocks, but that was not its major purpose. It also established the framework for the Lightning Network, which seeks to promote low-fee transactions by pushing them off-chain. In practise, however, the Lightning Network is far from flawless. It's much less difficult to grasp how Bitcoin transactions work in general, but it takes a lot more time and effort to learn how to manage channels and capacity on the Lightning Network. It remains to be seen whether it can be streamlined or whether the solution’s architecture is inherently too complex to abstract away. The rising cost of on-chain transactions during peak hours is directly related to the increasing competition for available block space. One could therefore argue that the currency's usefulness is diminished by the decision not to increase the block size. **There is no intrinsic value.** To many, the comparison between gold and bitcoin is ridiculous. The history of gold is, fundamentally, the history of civilization. Gold has been indispensable to human civilization for centuries. Although its prominence has diminished with the demise of the gold standard, gold is still widely regarded as a safe haven investment. Indeed, it does seem like a stretch to compare the network effects of the King of Assets to an eleven-year-old protocol. For aeons, gold has been prized for its significance as both a status symbol and an industrial metal. In contrast, Bitcoin has no purpose outside of its network. You can’t use it as a conductor in electronics, nor can you make it into a large, shiny chain when you decide to establish a hip-hop career. It may resemble gold (mine, finite supply, etc.), but that doesn’t change the fact that it’s a digital asset. In a sense, all money is based on a consensus of opinion; the dollar is worth something only because the government says so and people accept it. The value of gold is entirely based on the fact that people think it has value. Bitcoin is the same way; its backers make up a small fraction of the economy. You’ve likely had many conversations in your own life when you’ve had to explain what it is because the vast majority of people are unaware of it. **Volatility and correlation** Those who invested in Bitcoin early on have seen their fortunes grow by orders of magnitude.To them, it has truly stored worth—and then some. Individuals who bought their first coins at an all-time high, on the other hand, have had no such experience.Many incurred huge losses by selling at any point thereafter. Bitcoin's value can swing wildly from day to day, and its marketplaces are difficult to anticipate. Metals like gold and silver exhibit modest changes in contrast. You may make the point that it’s too early and that the price will eventually stabilize. But that fact may be evidence that Bitcoin is not a reliable store of value right now. There’s also Bitcoin’s tie to established markets to consider. Since Bitcoin’s birth, it's been on a steady ascent. The cryptocurrency hasn’t actually been tested as a safe-haven asset if all other asset classes are also performing well. Bitcoin advocates might refer to it as "uncorrelated" with other assets, but there’s just no way of knowing that unless other assets suffer while Bitcoin remains steady. **Tulip Mania and Beanie Babies** It wouldn’t be a legitimate criticism of Bitcoin’s store of value features if we didn’t bring up the analogies to Tulip Mania and Beanie Babies. These are weak analogies at the best of times, but they serve to show the perils of a bursting bubble. In both instances, investors flocked to buy objects that they considered to be rare in the hopes of reselling them for a profit. Items weren't particularly valuable on their own because they weren't difficult to replicate. The bubble broke when investors recognised that they were overvaluing their assets tremendously, and the markets for tulips and Beanie Babies subsequently crashed. Again, these comparisons fall flat. Bitcoin’s worth does originate from users’ belief in it, but, unlike tulips, more cannot be created to satisfy demand. That said, nothing guarantees that investors won’t perceive Bitcoin as overvalued in the future, leading its own bubble to burst. **Conclusion** Bitcoin undoubtedly shares most of the characteristics of a store of value like gold. The number of units available is finite, the network is decentralised enough to guarantee security to holders, and it can be used to hold and transfer value. Ultimately, it must still establish its viability as a safe-haven asset; it’s too early to say for sure. Things might go both ways: the world may flee to Bitcoin in times of economic upheaval, or it could continue to be used mainly by a limited group. **FAQs** **Is Bitcoin money?** While Bitcoin has some money-like properties, economists and authorities remain sceptical that it now behaves as money. This is due to the scarcity of bitcoin-denominated goods and services. While anyone may trade Bitcoin in large volume and transfer money over the network, little commercial activity still takes place. **Are bitcoins fairly valued?** Bitcoin's market price fluctuates wildly and is highly unpredictable. As a result, the market price at any particular time may vary significantly from its fair or intrinsic value. Still, over time, oversold markets tend to rally while overbought markets cool off. Thus, it is hard to evaluate at any given moment whether bitcoins are properly valued without the benefit of hindsight. **What makes Bitcoin a good long-term investment?** Limited supply: Bitcoin's maximum supply is 21 million. There will never be more than 21 million bitcoins. To many analysts, this limited supply, or scarcity, is a key contribution to Bitcoin's value. cannot be copied: Because Bitcoin relies on a blockchain ledger, no one can counterfeit it. **To what extent is BTC a risky investment?** The success of Bitcoin as a means of trade will determine its worth as a store of value. If Bitcoin does not find success as a means of exchange, it will not be valuable as a store of value. Most of Bitcoin's history, speculation has been the main thing that has driven its value. **That's all for today** **If you want more, be sure to follow us on:** **NOSTR: croxroad@getalby.com** **X: [@croxroadnews](https://x.com/croxroadnewsco)** **Instagram: [@croxroadnews.co](https://www.instagram.com/croxroadnews.co/)** **Youtube: [@croxroadnews](https://www.youtube.com/@croxroadnews)** **Store: https://croxroad.store** **Subscribe to CROX ROAD Bitcoin Only Daily Newsletter** **https://www.croxroad.co/subscribe** *DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.*