This beginner’s guide aims to explain the concept of a store of value, including its definition and evaluation criteria extensively. In light of Bitcoin’s growing popularity as a store of value asset, this guide examines whether it poses a better alternative to fiat currencies and gold, traditionally considered stores of value. The guide attributes the current interest in Bitcoin as a store of value to its design that emulates gold’s properties, as intended by its elusive creator, Satoshi Nakamoto. The guide concludes with an analysis of whether Bitcoin or dollars represent the superior store of value.
Definition of a store of value
The term “store of value” refers to an asset, commodity, or another tangible item with value that will continue to increase over time. Stores can increase in value but should never decrease in worth.
What makes something a fantastic asset to a store?
Many factors determine whether something is an asset to be a store of value. It is important to remember that something could still be a valuable store of value even if it doesn’t meet all the requirements.
All-inclusive – Available to all
It should be widely recognized as a value-added store by a large portion of people who are in the market. The more people think it is a store of worth, the better place to store value.
Long-lasting – It doesn’t decrease in value
Whether it is a decade or even a century, a property is worth its value over long durations. For instance, gold and silver have proven to be reliable storage units for many years.
Liquid – Simple to purchase and sell
You should be able to exchange money or asset for cash swiftly and quickly. In essence, there should be a thriving market of people looking to purchase a store worth something.
Scarce – limited supply
Producing more of something will diminish the value of the existing stock, which is why scarcity is an important aspect of a value-based store. For instance, fiat currencies aren’t uncommon since governments typically print many of them, whereas Bitcoin has a set supply of just 21 million bitcoins. One method to determine the amount of scarceness of something is to use the model of stock-to-flow.
Divided – Purchase and sell a portion but not the entire thing
The simpler it is to divide things into smaller pieces, the more efficient it is. A valuable store is, and you don’t need to sell everything. For instance, although gold can be divided, it’s not easy to divide like Bitcoin. Each bitcoin can be divided into 100 million satoshis.
Portable – Carry it out
Stores of value are more valuable if you can easily carry them around. Real estate is a reliable store of value, but you can’t carry it with you everywhere. However, fine art is more accessible to move around the world. It is even better if you carry all of your Bitcoin using a small device or by putting the help of a password that you keep inside your brain.
Fiat currencies as stores of value Dollars
Fiat currencies, like the Australian dollar (AUD) and the US dollar (USD), generally are not good sources of value as they have lost value since they have lost their purchasing capacity. They are being used because of their other purposes, too. For instance, they function as an exchange medium and an accounting unit.
Here’s a short review of fiat currencies and the various variables that makeup assets stores
- Widely accepted and accepted by everyone. Accepted by all – US Dollar is the most frequently used store of value across the globe as many nations use it to exchange, especially in international commerce. Other currencies that are fiat are widely known in their respective countries, however, not around the globe.
- Long-lasting in-time Fiat currencies aren’t in a position to last forever. They lose value over time because central banks expand the amount of money they issue.
- Liquid This fiat currency is transferred to banks and accepted as a payment method around the globe.
- A scarce resource Fiat currencies aren’t a problem as central banks worldwide have been cutting interest rates and printing currencies at an unprecedented rate.
- Divisible We are now able to trade fiat currencies. They can be quickly divisible.
- Portable. You could generally carry your currency on the go; however, you’ll have to rely on payment systems or banks.
Because fiat currencies don’t have a limit or are durable, it’s clear that it’s not surprising that the US dollar was supported by gold right up to 1971.
Is Bitcoin the best storage option? Bitcoin vs. dollars
Many investors consider Bitcoin the most valuable store of value due to its superior characteristics of gold and digital currencies. Bitcoin is well-known, reliable rare, divisible, and transportable. The only thing it’s lacking is its durability in time. Although it has demonstrated its worth over 10 years, it hasn’t had the time to demonstrate its worth over the centuries like gold has.
Although fiat currencies are becoming a more well-known method of exchange and an accounting unit, especially in crypto, with the growing need for stablecoins, bitcoin is starting to take on that position thanks to the development of the Lighting Network, which makes bitcoin transactions easy and smooth. Bitcoin is destroying the storage of value features of both fiat and gold currency.
It is too early to tell if this trend will persist; however, for the moment, we can see that Bitcoin is taking off against fiat currencies as a worldwide store of worth.
