Have you ever collected coins, art, gems, or even held on to a family heirloom for their value in the future? If yes, you might already be familiar with this concept. A store of value is a term used to describe an asset that can retain its purchasing power as time passes. Unlike certain investments that are subject to depreciation, an asset that is considered a store of value maintains or increases its value overtime. Traditionally, items such as gold, precious metals, and national currencies have been considered the most common stores of value because they are always in demand and can be easily converted. Although, an increasing number of investors are turning towards cryptocurrencies as a store of value because they share these features and more.
Simply put, a good store of value is any asset or commodity that can be easily retrieved at a later date and converted for the same value or a for a profit. Many assets can be used as a store of value, but there are certain features that make some more practical than others. Ideally, a good store of value should have the following characteristics:
The short answer is no, not necessarily. Although, this myth is quite common when it comes to cryptocurrency. In fact, most of the world’s Bitcoin is being held by institutions and individual investors as a long-term investment. This strategy is called “hodling” and it is popular among crypto investors that are more concerned with their returns to the future rather than day-to-day volatility. Bitcoin is undeniably volatile, but its history has shown a decline in volatility over the years. Bitcoin’s average 30-day volatility rate decreased from 8.26% in 2011, down to 5.17% in 2020, and 4.56% as of 2021.
Cryptocurrencies are still in the early stages of global adoption, which makes their value more sensitive to external factors. However, the scarcity, growth, utility, and sentiment around cryptocurrencies can be indicators of their success in the future.
As the first and most popular cryptocurrency, Bitcoin has been making headlines for its use as a store of value. Often referred to as a “digital gold,” both individual and corporate investors are holding significant amounts of Bitcoin for the long term. Notably, American software company MicroStrategy is currently holding more than $5 billion worth of Bitcoin in reserve for their corporate treasury.
What makes Bitcoin so attractive as a store of value can be condensed into a few factors. Bitcoin’s market cap of 21 million has made it a very scarce resource, and it has only increased in desirability over time. Because it operates on a decentralized network, this supply cannot be inflated, and its value is only driven by factors of supply and demand. Bitcoin is also fungible and can be divided into 100,000,000 Satoshis. It is easily stored and transferred with a stable internet connection, and the past 12 years or so of its existence have proven its durability. All in all, it has all the characteristics of a good store of value.
To see how Bitcoin compares to gold as a store of value, check out our article here.
There are thousands of cryptocurrencies on the market that exist for different purposes and have different utilities. With this in mind, there are certainly other cryptocurrencies than Bitcoin that have merit as a store of value dependent on your resources, knowledge, and risk tolerance. More recently, stablecoins like USDC which have their value tied to external assets like currencies or gold, are becoming common stores of value to stabilize portfolios or even hedge against inflation. But as always, it’s important to do your own research and to proceed with caution whenever looking to make an investment.
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