Bitcoin – let’s understand why investors describe it as a superior store of value
Bitcoin proponents have said from the beginning; the oldest cryptocurrency is a store of value. However, skeptics warn that investors shouldn’t ignore the drawdowns because digital currencies are highly volatile assets.
Bitcoin was developed as a technological solution to several issues with traditional money features. Technology has always had a key role in the monetary system, and it’s only logical to assume that it’ll continue to have a huge impact on the finance sector in the future. History shows that money has evolved as technology did, and it’s a normal step to turn our attention to something else than fiat money. Technological advances have led us to a reality where digital currencies like Bitcoin reshaped the monetary standards people meet, and it’s no surprise to witness investors looking for ways to buy Bitcoin p2p as its impact on society and economies has been enormous over the last few years.
If you still have doubts that Bitcoin is a worthy addition to your portfolio, continue reading this article because it’ll help you figure out if it’s a store of value.
Image source https://www.freepik.com/free-photo/bitcoin-computer-graphic-card_21016624.htm#page=2&query=bitcoin&position=27&from_view=search&track=sph
What is a store of value?
When you hear the term store of value, you cannot stop thinking that its meaning is obvious, but you should know that what it refers to has changed over the years. Nowadays, we use the term to define a commodity or asset that doesn’t depreciate over time. We expect stores of value to be worth the same or even more as time passes. If we look back in time, we’ll identify several stores of value that beat inflation and grew in value even during turbulent times.
This has made people add these assets or commodities to their investment portfolios and put their faith in them to protect them.
Features a store of value should have
Now that we have covered the definition, it’s the moment to explore the features of a store of value. However, keep in mind that an asset can still be a great store of value even if it lacks some of the following features.
Everyone can access it as it’s widely accepted
For an asset to be considered a store of value, it’s crucial to be available worldwide. The more people consider it a valuable commodity, the higher its value is, and the better a store of value.
Its value doesn’t depreciate over time
People invest in assets described as stores of value because their prices don’t go down in a year, decade, or century. Stores of value maintain their value in the long run. Gold, for example, is a commodity investors often add to their portfolios to protect their savings from inflation.
It’s easy to buy and sell the asset
Investors turn to assets they can easily swap for money. Therefore, a commodity can be defined as a store of value if there’s a large pool of people who want to trade it.
It has a limited supply
When there’s more of something, its value is diluted and cannot be described as a store of value. Scarcity is an essential feature of an asset that wants to become a store of value. Traditional currencies cannot be defined as stores of value because governments print more of them regularly. On the other hand, some digital assets like Bitcoin have a fixed supply, so they’re scarce.
Investors can buy and sell portions of the asset
Stores of value are better viewed when the investors can divide them into smaller parts they can trade. Most people don’t want to sell the entirety of a commodity they own, so being able to divide an asset pleases them more. Gold and Bitcoin are easily divisible, so they’re the preferred stores of value for investors.
The holders can easily take the asset with them
An asset is more popular among investors when they can easily take it with them. For example, real estate is a stable store of value, but you cannot move it around the world. Digital assets, on the other hand, are easier to transport, so their value is higher.
Why do investors believe Bitcoin is a store of value?
If you’ve browsed the Internet researching Bitcoin, you most likely noticed that its supporters name it digital gold. They state that the asset offers the benefits of a digital currency and precious metal, even if it’s newer in the sector.
Bitcoin was developed by an anonymous programmer, Satoshi Nakamoto, who wanted to offer investors a tool that solves the problems associated with traditional centralized money. Crypto enthusiasts believe that everyone will use Bitcoin or another digital currency in the future to guard their finances from economic instability.
Here are the reasons why Bitcoin is described as a store of value.
Bitcoin has a finite supply, so it’s a scarce asset
Satoshi Nakamoto established in Bitcoin’s White Paper that there would only be 21,000,000 Bitcoins mined. No one can interfere with the system and change the extent of the supply. Bitcoin enables digital scarcity and transmits value across the Internet. Because it has an immutable monetary supply, it’s a great store of value. Gold has become a store of value because it’s challenging to produce it, but Bitcoin gained this status because it’s impossible to replicate it.
Bitcoin facilitates trustless transactions
Using traditional assets requires trusting banks and governments. The several financial crises that rocked the stability of the finance sector show that investors cannot really trust them. Bitcoin enables trustless transactions because it functions based on a Prof of Work algorithm. All transactions on the blockchain are public, and the users can view the history of records.
Bitcoin is decentralized
No central authority controls the Bitcoin network. Bitcoin is a network functioning on servers and computers worldwide, and even if someone shuts down a couple of them, the overall system won’t suffer. Bitcoin is decentralized, so it remains outside the control of governments, being more powerful than traditional assets.
Final words
The inherent features of Bitcoin make it a valid store of value. As the belief in the first currency continues to rise, it’s clear that it will continue to gain ground and compete with traditional commodities for its place in the sector.