Bitcoin was created as a technological solution to the issues of traditional money features. Technology developments have always had a vital role in the monetary system, and it is expected to reshape the financial sector in the future. History proves that money evolved as technology did, so it is important to consider some alternatives to fiat money.
The concept of a “store of value” refers to the goods that can increase or retain their worth over time, and Bitcoin is considered such an asset. This reason has made people buy Bitcoin with the purpose of holding it for a medium-to-long period and thus pushed the Bitcoin price up.
Let’s figure out more about the reason why Bitcoin is considered a store of value.
What is a store of value?
A store of value can be described as an asset that can retain its purchasing power over time and is able to be exchanged rapidly for something else. Common stores of value include precious metals, fiat currency, property and real estate. A good store of value needs to be portable, durable, fungible, scarce, divisible and verifiable. Ideally, a store of value doesn’t bear much risk, which is why, in the past, people were more interested in investing in a secure asset that has a stable demand, an ensuring lifespan and low volatility.
But fiat currencies can be weak stores of value, as due to inflation, they can depreciate their value over time. Instead, commodities like gold, Bitcoin and other monetary metals have good store-of-value attributes as they are limited in supply and maintain their value over time.
The main features of a store of value
It is widely accepted
For an asset to be a good store of value, it is essential to be available worldwide. Also, if more people consider it a valuable commodity, its value can increase and become a better asset.
The value doesn’t depreciate over time
One of the best characteristics of a store of value is the fact that its value will not go down in the next few years, decades or centuries. Stores of values have the great advantage of maintaining their value over time. For instance, gold is a good store of value that investors can add to their portfolios as it can protect their savings from inflation.
It is easy to sell and buy
People invest in assets that can easily be swapped for money. So, a commodity can become an important store of value if a large pool of people is interested in it.
It has a limited supply
When something has a big capacity, the value will depreciate and will not be described as a store of value. This is why scarcity is an essential feature for an asset to become a store of value. Also, this aspect is one of the reasons why traditional currencies can’t be described as a good asset, as there are plenty of them, and the government can print them regularly. Instead, digital currencies like Bitcoin have a fixed supply, which makes people more interested in them.
People can buy and sell portions of the commodity
Stores of value have the ability to divide into smaller parts to be traded. Some people don’t want to sell the entire asset they own, so dividing the asset as they wish is a bonus. Bitcoin and gold can be easily divisible, which is why they are preferred options for investors.
Holders can take the assets with them
If an asset can be carried wherever you go, it will always become popular. For instance, real estate is a stable commodity, but it is not portable. Instead, digital assets are easier to transport, so their value will also be higher.
Why is Bitcoin considered a store of value?
If you search the Internet, you will see that Bitcoin is often called digital gold. People state that Bitcoin offers both the advantages of a precious metal and a digital currency, even if it is quite new in the market. Bitcoin was developed by Satoshi Nakamoto, an anonymous programmer, who wanted to give investors the possibility to solve the problems associated with fiat money. Crypto enthusiasts think that all people will use digital currency in the future to safeguard their finances from economic instability.
Here is why Bitcoin can be described as a store of value.
Bitcoin is a scarce asset because it has a finite supply
The creator of Bitcoin, Satoshi Nakamoto, established that there would be only 21,000,000 Bitcoin mined. So, no one can interfere with the system or change something to the extent of the supply. Bitcoin transmits its value across the Internet, and investors often closely monitor Bitcoin price as it serves as a great store of value due to its immutable monetary supply. Gold has become a store of value because it can be challenging to produce it. Still, Bitcoin is an important asset that gained popularity because it is impossible to replicate.
Bitcoin allows trustless transactions
Traditional assets involve dealing with banks and governments. You need to trust them, but plenty of financial crises proved why investors shouldn’t. On the other hand, Bitcoin enables trustless transactions, as it is based on a proof-of-work algorithm. Because of this fact, the transactions on the blockchain are public, and all the users can see the history of records.
Bitcoin is a decentralized asset
Bitcoin is decentralized, meaning that no central authority controls it. Bitcoin is a network that works on computers and servers worldwide, so even if someone decides to shut down a couple of them, the system will not suffer. Because Bitcoin is decentralized, it remains outside the control of banks and governments, making it more powerful than traditional choices.
The bottom line
All the features of Bitcoin make the digital asset a superior store of value. People have begun to consider this virtual currency more, which is why it is expected that Bitcoin will gain even more ground in the future and compete with other traditional assets for its place in the sector.