Is Bitcoin a Store of Value?

Bitcoin was created as the world’s first cryptocurrency – a radically new way to imagine how money can work, based around mathematical algorithms instead of a central bank. Over a decade later, and millions of people around the world interact with the Bitcoin network every day. However, while bitcoin was created to be used as a digital currency, many people use it instead as a store of value.

In this article, we’ll discuss what a store of value is, why some people use Bitcoin as a store of value, the downsides to using it as a store of value, and we’ll finish off with some closing thoughts to help you make your own decision regarding Bitcoin.

Broadly speaking, a store of value is any asset that you can use to protect your financial power. For example, some individuals might see precious metals, like gold or silver, as a store of value because they have historically been able to protect an individual’s purchasing power more than fiat money can. In instances where a country sees their central bank collapse, fiat money issued by that bank may become worthless, while a precious metal like gold remains valuable both within that country and outside of it. For this reason, precious metals have functioned as a store of value.
Stores of value can vary widely. Not only can precious metals serve this function, but so too can government or corporate bonds, real estate, stocks, ETFs, and many more types of assets. Essentially, if there is an asset that you believe will retain its value well during the foreseeable future, it could be thought of as a store of value.

An upside to bitcoin is that it functions independent of a central government. This means that, in most cases, the destabilisation of one country can’t take down the entire Bitcoin blockchain. For people looking to maintain their purchasing power in an economically turbulent time, this can be quite attractive. Additionally, because the creation of new bitcoins is controlled by a mathematical algorithm, they are more resistant to inflation than most fiat currencies.

Aside from the sense of security that bitcoin brings some investors, this cryptocurrency has also performed quite well when compared to other investment classes. Although the value of a bitcoin can fluctuate rapidly and widely in even a single day – oftentimes far more rapidly and widely than most other asset classes – the overall trajectory of bitcoin has largely been upwards. For this reason, many investors are choosing to store an increasing amount of their net worth in bitcoin.

Essentially, the value of bitcoin comes from its scarcity and utility, and this serves as a signal for many who believe in it. It allows them to project that in the future, bitcoin will remain valuable.

What are the downsides to using Bitcoin as a store of value?

Although bitcoin as an investment has performed fairly well over the past several years, there is no guarantee that this trend will continue. People putting some of their net worth into bitcoin assuming that it is safe and assured to increase may be sorely mistaken should the price of bitcoin drop significantly and stay down. For this reason, it is wise to only invest money into bitcoin or other cryptocurrencies that you are comfortable with losing; don’t invest money that you depend on or would be ruined without should the price of bitcoin plummet. 

Additionally, Bitcoin’s status in the world is in a constant state of transition. Some countries allow their citizens to use Bitcoin, while other countries have outright banned it. If you’re considering investing in Bitcoin, you should be aware that your country of residence could outlaw its use, heavily tax its use, or use some other regulatory action that would negatively impact your holdings.

There is no debating the fact that Bitcoin has forever changed the way we think about money, investments, and stores of value. Although the price of a bitcoin has been increasing significantly in recent years, there is no guarantee that this would continue. Additionally, even though the Bitcoin network operates independently of central governments, the ability for a person to use it within a country’s economy is up to the discretion of that same government. For this reason, anyone interested in using Bitcoin as a store of value should carefully consider their comfortability with the uncertainty surrounding this cryptocurrency. As always, do your own research, weigh your options carefully, and never invest more than you’re willing to lose.