Bitcoin is a Store of Value

[dnprock]

After last week's price crash, I saw some discussions regarding this topic. I have not changed my thesis. I wrote a post to explain my view.

Original Post: https://bitflate.org/post/2020/03/17/bitcoin-is-a-store-of-value.html

This article expresses a personal opinion of the Bitflate developer. It is not investment advice.

TL;DR

Long-term, Bitcoin is a Store of Value.

Short-term, Bitcoin is a speculative asset.

The coronavirus is spreading across the world. The US economy is feeling its impact. In time of crisis, people are dumping equities for cash. Crypto market had a hard crash last week. Bitcoin dropped more than 50% on March 12, 2020. Bitcoin analyst, Nic Carter, pointed out that it was the 2nd worst percentage drop in recorded history of Bitcoin trading. The worst percentage drop happened in 2013. This Bitcoin’s price drop coincides with the US stock market crash. This correlated price movement challenges Bitcoin’s value proposition as a safe haven Store of Value.

The magnitude of price drop shattered many bitcoin owners. They’re quick to dump and start to question the safe haven SoV thesis. This is understandable. As we are introduced to Bitcoin, the first most enduring thesis we hear is the Store of Value. The stock market drops 5-10% a day during this crisis, while the Bitcoin Store of Value drop 50% in a day. Bitcoin is peculiar. It lives in the fringe and extremities of our psychology. Can a Store of Value be extremely volatile? I think the answer is yes. We consider how we view Bitcoin in the short-term or long-term.

Bitcoin’s short-term price movements are dependent on traders

Bitcoin is a global digital currency. People trade it 24/7. There is no circuit break. No authority can intervene to stop its price movements. If we divide Bitcoin owners into hodlers and traders, we can see that traders dominate Bitcoin’s daily movements. Occasionally, hodlers will switch to be traders and vice versa. When Bitcoin price crashes, some hodlers may become anxious and start dumping their bitcoins.

Traders want to make money. They think short-term. They live off price movements. Bitcoin’s short-term price trend is speculative. It’s difficult to understand its daily price actions. With the stock market index, when many stocks can crash, some stocks remain well positioned. For example, this crisis greatly impacts Boeing due to decrease in air travel. But Costco benefits from increase volume. Bitcoin is a solo asset. Therefore, its price movement is very volatile.

Bitcoin’s fundamentals remain strong

During this price crash, we saw Bitcoin’s price dropped below $4k. But it bounced back and has hold above $5k in the past few days. This likely indicates that long-term investors remain holding and buying.

We see how Bitcoin price can make sudden and drastic changes. This recent price crash is entirely caused by external factors. Bitcoin’s fundamentals change very little. Besides a hashrate drop, we don’t see any other change in how Bitcoin trades and operates. It is still producing blocks every 10 minutes, or maybe a little slower. It is still issuing 12.5 coins for every block for the past 4 years. It is still secure. Bitcoin’s fundamentals remain strong.

Bitcoin is a Store of Value

If we zoom out the hours, days, and months of the Bitcoin price chart, we can see its long-term price trend remains up. The currently crisis is caused by external factors. The coronavirus is impacting the world’s economies. A sudden panic is causing people to flee asset markets. This has not changed Bitcoin’s value thesis. Long-term, Bitcoin is a Store of Value.

By long-term, I mean the time horizon is 5-10 years (more than 1 halving). Bitcoin’s price movement is affected by traders in the short-term. But in the long-term, hodlers will ultimately decide its price trend.

Long-term, Bitcoin is a Store of Value.

Short-term, Bitcoin is a speculative asset.

When to dump Bitcoin

People will move their money around. I follow but usually ignore short-term price movements. I try to stick with my timeline and how I allocate money. During tumultuous times, some bitcoiners advocate HODLism as a strategy. You should always hold. But I don’t think this is a sound strategy. I think a sound investment approach is to compare Bitcoin with other assets. If I see Bitcoin overvalued compared to real estate or equities, I would consider dumping Bitcoin. This is my personal view of how to deal with Bitcoin’s price movements. You should do your own research.

Bitflate is a cryptocurrency with constant inflation of 7% per year. Its goal is to be a Medium of Exchange.

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[odolvlobo]

A couple questions:

How do you define "store of value"?

Can Bitcoin be other things in addition to a store a value? A "good" money a medium of exchange, a store of value, and a unit of account. Are you saying that Bitcoin is only a store of value and therefore not a good money?

[hv_]

too many ponzi-like sales chills out there

keep it simple:

today: not really a SoV

Who on earth can predict the future? - so only if there is a big viral (lol) global adoption in terms of use (incl gov and regulators == global) -> than you can compare to gold / other comodities


today: bad SoV, bad volatile asset, not regulatory friendly instrument (next - see what Bitcoin ticker locked down the original protocol to be THE regulator friendly Bitcoin - that scales)

[hv_]

Well, Satoshi meant for it to be used a currency just that it's finite supply also makes it suitable as a store of value. Until crypto enthusiasts learn how to hodl and really trust in bitcoin it's feature of being a store of value will never be felt because anytime there is any concern in the market people are going to dump it. Take a look at what's happening right now with the spread of Coronavirus

Hodl and ponzl was the cancer = segwit

This is a good reading


https://coingeek.com/why-there-is-no-store-of-value-or-digital-gold-in-btc/

[BrewMaster]

people just panicked and went crazy. if anything it shows the effects of unreasonable fear on the bitcoin price. and it wasn't directly linked to coronavirus but it was liked to everything else being dumped that caused fear in people expecting the same dump in bitcoin so they tried to act faster and caused the crash becasue of that!

as for Store of Value, if you mean bitcoin is a currency and like any other currency such as fiat, it is a store of value too. then i agree.

[dnprock]

A couple questions:

How do you define "store of value"?

Can Bitcoin be other things in addition to a store a value? A "good" money a medium of exchange, a store of value, and a unit of account. Are you saying that Bitcoin is only a store of value and therefore not a good money?

Defining Store of Value is a trap to walk into. The most accurate definition of a Store of Value is a store of VALUE. A close definition is a value that does not devalue with inflation. Some examples are gold, real estate. I think gold is the closest analogy. Real estate can be a Store of Value if the land is in high demand, like big metropolitans, agriculture lands. If you're in declining cities, like the US midwest areas, real estate is not a Store of Value. The US equity market can be considered a Store of Value. You've done well if you've invested after WW2. I'm not sure what the future holds for the equity market when we start having negative interest rates. My guess is it'll slowly lose its Store of Value status.

Bitcoin is unique because of its properties. I think it is a Store of Value on its own. It has two key differences from gold: (1) Its inflation will drop below gold and head to 0 (gold has 1.5% inflation rate), (2) It's very new (humans first used gold at least 40k years ago). These differences make Bitcoin more volatile. In the future, I think Bitcoin's market cap can match gold plus its 1.5% inflation.

Bitcoin is only a Store of Value. Bitcoin will not be a medium of exchange. Its supply cap of 21M is the reason. It's "good" money. It's desirable that people will dump other "bad" monies before they touch their bitcoins. I wrote an article on this topic:

https://bitflate.org/post/2019/11/24/bitcoin-will-not-be-a-medium-of-exchange.html

Other Bitcoin forks, BCH or BSV, face the same problem with 21M supply cap. Changing block size will not make a difference.

[dnprock]

Well, Satoshi meant for it to be used a currency just that it's finite supply also makes it suitable as a store of value. Until crypto enthusiasts learn how to hodl and really trust in bitcoin it's feature of being a store of value will never be felt because anytime there is any concern in the market people are going to dump it. Take a look at what's happening right now with the spread of Coronavirus

Hodl and ponzl was the cancer = segwit

This is a good reading

https://coingeek.com/why-there-is-no-store-of-value-or-digital-gold-in-btc/

The author of this article misunderstood gold. Gold used to be technology before it became money. Humans learned how to manipulate metals with gold. Then we started making metal tools and weapons. Gold then became decorative. Its primary use is money. Nobody likes to carry gold nuggets around. It looks dumb. That's why they make gold into jewelry. Gold was money before jewelry.

[kemoglo]

After last week's price crash, I saw some discussions regarding this topic. I have not changed my thesis. I wrote a post to explain my view.

Original Post: https://bitflate.org/post/2020/03/17/bitcoin-is-a-store-of-value.html

This article expresses a personal opinion of the Bitflate developer. It is not investment advice.

TL;DR

Long-term, Bitcoin is a Store of Value.

Short-term, Bitcoin is a speculative asset.

The coronavirus is spreading across the world. The US economy is feeling its impact. In time of crisis, people are dumping equities for cash. Crypto market had a hard crash last week. Bitcoin dropped more than 50% on March 12, 2020. Bitcoin analyst, Nic Carter, pointed out that it was the 2nd worst percentage drop in recorded history of Bitcoin trading. The worst percentage drop happened in 2013. This Bitcoin’s price drop coincides with the US stock market crash. This correlated price movement challenges Bitcoin’s value proposition as a safe haven Store of Value.

The magnitude of price drop shattered many bitcoin owners. They’re quick to dump and start to question the safe haven SoV thesis. This is understandable. As we are introduced to Bitcoin, the first most enduring thesis we hear is the Store of Value. The stock market drops 5-10% a day during this crisis, while the Bitcoin Store of Value drop 50% in a day. Bitcoin is peculiar. It lives in the fringe and extremities of our psychology. Can a Store of Value be extremely volatile? I think the answer is yes. We consider how we view Bitcoin in the short-term or long-term.

Bitcoin’s short-term price movements are dependent on traders

Bitcoin is a global digital currency. People trade it 24/7. There is no circuit break. No authority can intervene to stop its price movements. If we divide Bitcoin owners into hodlers and traders, we can see that traders dominate Bitcoin’s daily movements. Occasionally, hodlers will switch to be traders and vice versa. When Bitcoin price crashes, some hodlers may become anxious and start dumping their bitcoins.

Traders want to make money. They think short-term. They live off price movements. Bitcoin’s short-term price trend is speculative. It’s difficult to understand its daily price actions. With the stock market index, when many stocks can crash, some stocks remain well positioned. For example, this crisis greatly impacts Boeing due to decrease in air travel. But Costco benefits from increase volume. Bitcoin is a solo asset. Therefore, its price movement is very volatile.

Bitcoin’s fundamentals remain strong

During this price crash, we saw Bitcoin’s price dropped below $4k. But it bounced back and has hold above $5k in the past few days. This likely indicates that long-term investors remain holding and buying.

We see how Bitcoin price can make sudden and drastic changes. This recent price crash is entirely caused by external factors. Bitcoin’s fundamentals change very little. Besides a hashrate drop, we don’t see any other change in how Bitcoin trades and operates. It is still producing blocks every 10 minutes, or maybe a little slower. It is still issuing 12.5 coins for every block for the past 4 years. It is still secure. Bitcoin’s fundamentals remain strong.

Bitcoin is a Store of Value

If we zoom out the hours, days, and months of the Bitcoin price chart, we can see its long-term price trend remains up. The currently crisis is caused by external factors. The coronavirus is impacting the world’s economies. A sudden panic is causing people to flee asset markets. This has not changed Bitcoin’s value thesis. Long-term, Bitcoin is a Store of Value.

By long-term, I mean the time horizon is 5-10 years (more than 1 halving). Bitcoin’s price movement is affected by traders in the short-term. But in the long-term, hodlers will ultimately decide its price trend.

Long-term, Bitcoin is a Store of Value.

Short-term, Bitcoin is a speculative asset.

When to dump Bitcoin

People will move their money around. I follow but usually ignore short-term price movements. I try to stick with my timeline and how I allocate money. During tumultuous times, some bitcoiners advocate HODLism as a strategy. You should always hold. But I don’t think this is a sound strategy. I think a sound investment approach is to compare Bitcoin with other assets. If I see Bitcoin overvalued compared to real estate or equities, I would consider dumping Bitcoin. This is my personal view of how to deal with Bitcoin’s price movements. You should do your own research.

Bitflate is a cryptocurrency with constant inflation of 7% per year. Its goal is to be a Medium of Exchange.

But even considering this, what this dip proved to many is that bitcoin isn't all safe of mayor market swings when traditional markets are failing, and that's part of the reason why they could've gotten on crypto to begin with. I personally won't jump ship on bitcoin, but I'd understand if someone who got into it following Satoshi's idea of a safe haven suddenly doesn't want to support it anymore. They got in for the wrong reasons, but here's the catch, they already know the platform, they'll see the price go up over time and will probably get back into it.

People got upset and that's a very human reaction all things considered.

[Janation]

Despite the long and short term, Bitcoin is not a store of value.

The obvious reason for it is because it is volatile. People would say it is a store of value since it is giving a profit in the long term but still, it is so volatile to be a store of value.

[dnprock]

If you think Bitcoin is a store of value at any time frame, you are marking yourself as a moron.

Store of value need to be stable, bitcoin is never stable.

It either shoots up in price or crashes down, stable it has never been!

Nutjobs , don't think bitcoin can die, and products can be replaced by newer better performing products.

Confusing religion beliefs with a product cycle is why so many here lose their shirt with bitcoin.  

I used to think a Store of Value needs to be stable. But maybe, that's wrong. A Store of Value does not need to be stable. The important requirement is to retain value over time. Bitcoin is digital and has 21M supply. There will never be enough. It is going to be volatile. Gold has 1.5% inflation rate. It's still volatile. Governments hoard gold to reduce its volatility. Gold screwed economies up badly over the years. People abandoned it. They don't like using gold as a medium of exchange because it's volatile. Gold has been a Store of Value for thousands of years.

Stock markets are volatile. Governments implement measures to stabilize the markets. Its stability is done through manipulation. We saw this in 2008 and now.

So a Store of Value is usually volatile.

[Wind_FURY]

A couple questions:

How do you define "store of value"?

A type of "money" with the supply that's not manipulated by people who own a printing press.

A type of "money" that can't be taken away from you, you control your keys.

A type of "money" that's censorship-resistant.

Can Bitcoin be other things in addition to a store a value? A "good" money a medium of exchange, a store of value, and a unit of account. Are you saying that Bitcoin is only a store of value and therefore not a good money?

You can use Bitcoin as a medium of exchange anytime.

Unit of account would come later with adoption, and stability.

[Latviand]

If you think Bitcoin is a store of value at any time frame, you are marking yourself as a moron.

Store of value need to be stable, bitcoin is never stable.

It either shoots up in price or crashes down, stable it has never been!

Nutjobs , don't think bitcoin can die, and products can be replaced by newer better performing products.

Confusing religion beliefs with a product cycle is why so many here lose their shirt with bitcoin.  

I used to think a Store of Value needs to be stable. But maybe, that's wrong. A Store of Value does not need to be stable. The important requirement is to retain value over time. Bitcoin is digital and has 21M supply. There will never be enough. It is going to be volatile. Gold has 1.5% inflation rate. It's still volatile. Governments hoard gold to reduce its volatility. Gold screwed economies up badly over the years. People abandoned it. They don't like using gold as a medium of exchange because it's volatile. Gold has been a Store of Value for thousands of years.

Stock markets are volatile. Governments implement measures to stabilize the markets. Its stability is done through manipulation. We saw this in 2008 and now.

So a Store of Value is usually volatile.

That mindset is somehow helpful to prevent being problematic when the price of the bitcoin goes down. Being optimistic and understand reality is somehow effective to become more efficient in storing bitcoin. It is true that stock markets are volatile depending on the events or happenings around the world that can affect its value. For example, the covid-19 is surely a factor why bitcoin is in a $5000 USD right now. I hope that the government should work on this so that people will not have a hard time storing bitcoin on their own. Like promoting bitcoin, it helps us to increase the volume of people using it so the demand also increases. Gold and Bitcoin are the same because they have limited resources.

[davis196]

Long-term, Bitcoin is a Store of Value.

Short-term, Bitcoin is a speculative asset.

You are right,but speculative traders are what gives Bitcoin value.They pump the BTC market with liquidity,so the price can survive,even though there's a bullish trend or a big crash.The speculators are hungry for taking risk.They are "buying risk" by buying Bitcoins.If you remove price volaitility(and the element of high=big profit) from Bitcoin,all the speculative traders will be gone,thus the market liquidity will be gone,therefore the Bitcoin price will be very low,maybe even close to zero.The short-term speculations are what actually makes Bitcoin a store of value(yet,still very volatile).

[Assface16678]

Long-term, Bitcoin is a Store of Value.

Short-term, Bitcoin is a speculative asset.

You are right,but speculative traders are what gives Bitcoin value.They pump the BTC market with liquidity,so the price can survive,even though there's a bullish trend or a big crash.The speculators are hungry for taking risk.They are "buying risk" by buying Bitcoins.If you remove price volaitility(and the element of high=big profit) from Bitcoin,all the speculative traders will be gone,thus the market liquidity will be gone,therefore the Bitcoin price will be very low,maybe even close to zero.The short-term speculations are what actually makes Bitcoin a store of value(yet,still very volatile).

The market price of the bitcoin fall down immediately because of having falling of market stock and also the spreading of the disease today and that was not quite a good news to the investor or the people made a lot of investment when the market price of it is too high and today we are now having a huge problem because the price of the bitcoin becomes more stable to the price of five thousand dollars and it takes again because it can earn a lot of profit on it still we cannot say that if you made a lot of investment when the market is too low because sometimes it became volatile and it may fall immediately and lose a profit for having a mistake on decisions.

[fiulpro]

Even if we talk about the long term prognosis , one can only speculate. 
The market is indifferent to the needs of investors and other cryptocurrencies related stuff , it rises and fall according to the demand and supply rule which is highly regulated by the Whales.
Amidst all this one should understand it depends on the person , when the chooses to sell .
He might have been holding for over an year and sells during a break down .
It's highly volatile and controlled by the whales .

[odolvlobo]

Defining Store of Value is a trap to walk into. The most accurate definition of a Store of Value is a store of VALUE. A close definition is a value that does not devalue with inflation. Some examples are gold, real estate. I think gold is the closest analogy. Real estate can be a Store of Value if the land is in high demand, like big metropolitans, agriculture lands. If you're in declining cities, like the US midwest areas, real estate is not a Store of Value. The US equity market can be considered a Store of Value. You've done well if you've invested after WW2. I'm not sure what the future holds for the equity market when we start having negative interest rates. My guess is it'll slowly lose its Store of Value status.

Anything that can generate income is a store of value by definition (i.e. discounted cash flow), including land. Gold and Bitcoin don't generate income so their value must be derived from their utility. Without that utility, they are no more than a pyramid scheme.

... Bitcoin is only a Store of Value. Bitcoin will not be a medium of exchange. Its supply cap of 21M is the reason. It's "good" money. It's desirable that people will dump other "bad" monies before they touch their bitcoins. I wrote an article on this topic:

There are three requirements for a good money:

• store of value
• medium of exchange
• unit of account

If Bitcoin is only a store of value, and is not (and can never be) a medium of exchange or unit of account, then Bitcoin is not (and will never be) a good money. Sorry.

I personally believe that there is a good chance that Bitcoin will become all three and become a good money in time. Otherwise, it will just fade away.

[dnprock]

Defining Store of Value is a trap to walk into. The most accurate definition of a Store of Value is a store of VALUE. A close definition is a value that does not devalue with inflation. Some examples are gold, real estate. I think gold is the closest analogy. Real estate can be a Store of Value if the land is in high demand, like big metropolitans, agriculture lands. If you're in declining cities, like the US midwest areas, real estate is not a Store of Value. The US equity market can be considered a Store of Value. You've done well if you've invested after WW2. I'm not sure what the future holds for the equity market when we start having negative interest rates. My guess is it'll slowly lose its Store of Value status.

Anything that can generate income is a store of value by definition (i.e. discounted cash flow), including land. Gold and Bitcoin don't generate income so their value must be derived from their utility. Without that utility, they are no more than a pyramid scheme.

... Bitcoin is only a Store of Value. Bitcoin will not be a medium of exchange. Its supply cap of 21M is the reason. It's "good" money. It's desirable that people will dump other "bad" monies before they touch their bitcoins. I wrote an article on this topic:

There are three requirements for a good money:

• store of value
• medium of exchange
• unit of account

If Bitcoin is only a store of value, and is not (and can never be) a medium of exchange or unit of account, then Bitcoin is not (and will never be) a good money. Sorry.

I personally believe that there is a good chance that Bitcoin will become all three and become a good money in time. Otherwise, it will just fade away.

It's not necessary for Bitcoin to have utility. Bitcoin's utility can happen indirectly. For example, if Bitcoin serves as the incubation for other cryptocurrencies and technologies. The same thing happened to gold. Gold did not have utility. But it was the first metal that humans learned to extract 40k years ago. Gold started mining industries for other metals. Humans later found utilities of other metals as tools and weapons. Gold is a Store of Value. Its utility happens indirectly in other metals.

[pooya87]

It's not necessary for Bitcoin to have utility.

wrong. it IS mandatory for bitcoin to have utility otherwise it becomes some random numbers on your computer screen and without any value.

Gold did not have utility.

wrong. gold has at least 40 different utilities and that is the main reason why it has a value in first place.

[LUCKMCFLY]

The greatest haven of value has always been gold, history has shown it, in every crisis gold is always used, today there is Bitcoin, which is not considered a haven of value, for some scenarios of countries with inflation crises If it can turn out to be a great relief, but given the current circumstances due to the virus, all markets have fallen, including gold at 7%, so seeing Bitcoin as a haven of value is not recognized worldwide, perhaps due to its volatility, today day is a great investment to have gold and Bitcoin, it is what is always recommended.

[dnprock]

It's not necessary for Bitcoin to have utility.

wrong. it IS mandatory for bitcoin to have utility otherwise it becomes some random numbers on your computer screen and without any value.

Gold did not have utility.

wrong. gold has at least 40 different utilities and that is the main reason why it has a value in first place.

This is misunderstanding of gold history. Maybe early crypto pioneers were eager to replace gold. They deleted a huge chunk of gold history and made it a shiny metal with silly utilities, like, jewelry. Silver as a color is more appealing than gold.

According to archeological evidence, the first metal that humans learned to manipulate was gold 40k years ago.

https://en.wikipedia.org/wiki/Metallurgy#History

Then we went through Upper Paleolithic (Late Stone Age), Mesolithic & Neolithic (End of Stone Age), Chalcolithic (Copper Age), Bronze Age, Iron Age.

Notice these progressions were marked by advances in metal technology. Gold started metal revolutions. It's scarce enough to become valuable. It's been used as a symbol. Copper, bronze, and iron were the utilities.