Cryptocurrency as Money Part 3: Is Bitcoin a Store of Value?

by | Aug 11, 2019

This post is the third and final post in a three-part series about Cryptocurrency as money. Read the first part – History of Money, and the second part – What Is Money?

Now, finally, for the big unanswered question: Is Bitcoin a store of value? 

Well… Maybe. There are several ideas floating around on if it’s a store of value or not, and your mileage on any of them may vary. This post, in particular, isn’t trying to come to any conclusion on that, I merely want to gather and present the theories I’ve found. 

Answer 1: No, it’s not. 

You were expecting this one, weren’t you? 

How could something that jumps value 20% in either direction every month be a store of value? If you invested $100 today and lost it tomorrow, well… That’s money gone, and that’s totally plausible with Bitcoin. Not exactly a “store of value”, is it? Stocks also jump value like this, sometimes, even though broadly they appreciate over time, but they aren’t considered stores of value for the very same reasons. 

J.P. Morgan’s Jamie Dimon has been among the most notable Bitcoin skeptics. In 2014 he said, “Bitcoin is a terrible store of value.” In 2015 he said it wouldn’t survive and in 2016, he said it was going nowhere. Now, later down the line, he sort of backtracks on some of his harsher sentiments against Bitcoin, but still firmly believes it’s fundamentally different from fiat money. Others compare Bitcoin to gold, as that’s sort of the standard for stores of value, and they believe it falls short for any number of reasons. 

Answer 2: Yes, it is. 

You might be inclined to believe that, with Bitcoin’s value jumping around like a startled bunny rabbit on an obstacle course, it can’t be, or at least currently isn’t a store of value. Here is where Forbes points to a rather interesting counterexample – gold.

In America in 1971, Richard Nixon took the country off of the gold standard, and what followed was a period of massive volatility in gold’s prices. As an extremely telling example, in 1979, the price of gold was up 120.57%, and then just two years later, it was down 32.76%. That’s a crazy jump in a two-year gap, especially when you consider that gold has been considered valuable since humans first started digging it out of the ground. The prices fluctuated wildly all through the ’70s and didn’t stabilize until later. 

Forbes points out that there are two main tells to something a new store of value. First is rapidly appreciating value that slows over time and then, high but declining volatility, which mirrors what’s happening with Bitcoin rather well.

Answer 3: No, because the very concept of a store of value is flawed. 

I wasn’t expecting this one, either. 

This idea has been floating around for a while and can be summed up pretty easily. Money isn’t a store of value at all, because “value” is arbitrarily assigned and subjective. Economist Joseph T. Salerno refutes the idea of money acting as a store of value, asserting: “The value an individual attaches to a given sum of money or to any kind of good is based on subjective judgment and is without physical dimensions. As such the value of money varies from moment to moment and between different individuals.” 

What he’s getting at, here, is that the idea of a store of value is flawed because it’s not consistent or standard, and thus, “value” can’t be stored because it doesn’t exist in the first place. 

Assuming this is true, defining Bitcoin and other currencies as money is more a matter of utility and practicality, but this would require changing the widespread definition of money.

Overall, it’s essentially impossible to make a well-informed prediction on if Bitcoin and other cryptocurrencies are going to become broadly accepted as a kind of money. It’s very new and as we’ve seen in the history of money when a new advancement comes along, it may take quite some time to be accepted, or could just as easily burn up and fall out of use. It’s impossible to know for certain, the only way to find out is to wait and see.

Written By Nanni Narayanan

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Posts on the HyperTrader blog and associated HyperLinq websites are for educational and informational purposes only. These posts should not be taken as financial advice, nor are they meant to be viewed as trading advice. HyperLinq Inc. takes no responsibility for any damages or losses.

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