Why Bitcoin doesn't work well as a store of value.

[henry_of_skalitz]

1. People often say bitcoin is a store of value, but in the same breath also tell you it is highly volatile.

Bitcoin being a store of value is for long term, it does not talk about immediate value generation; so yes, bitcoin is a good store of value. Bitcoin is not highly volatile like you say, that term could be used for memecoins and shit coins.

Why BTC can't be both is my question for the OP.

[d5000]

Another big problem I see is that the quantity of bitcoin mined everyday is fixed and cannot be controlled or adjusted to meet the current level of demand.

Mined coins are now almost irrelevant in the supply/demand equation as 95% of all Bitcoins have already been mined.

This means Bitcoin should be considered already a static-supply asset. Take into account lost coins and I believe it should already be close to invariant or even, in occasions, the circulating supply could be already decreasing. I believe this estimation of 500-700k Bitcoin lost every year is too high, but even if it's only 100k - there are only 164k Bitcoin mined per year (with 3.125 BTC per block).

You are onto something that this inelastic supply is not ideal as an unit of account in a world with changing rhythm of economic growth. The problem is that Bitcoin tends to get periodically into a liquidity crisis, which results into exaggerated FOMO and then to bubble deflations with massive profit taking. But these bubble deflations are always the consequence of profit taking and not based on some fundamental problem. They are not the consequence of any "flooding" because the new Bitcoins are only a tiny percentage of the daily trading supply.

If we take into account higher moving averages like the 4 year SMA (or the 200 week SMA) they are almost always increasing. This means that as long as you don't buy Bitcoin in a period of maximum FOMO, it has worked until now as a store of value. And as long as adoption doesn't decrease due to some fundamental issue, there is nothing that changes that logic.

[virasog]

Why BTC can't be both is my question for the OP.

Well, the logic is simple in this case. If Bitcoin is the store of value, it needs to have a stable demand or in other words, the bitcoin shouldn't be too volatile as it is behaving in current times. People consider a store of value for those coins which do not lose value and is constantly in more of an uptrend.

Check the Gold price action, and you will see its gradually increasing in price and also the dumps aren't too big as with Bitcoin. That's the reason people consider Gold as a store of value and bitcoin still needs more time to prove the same. Although Gold supply isn't limited, but bitcoin supply is limited and that is an advantage of bitcoin over Gold.

[asrinur]

Do you agree or disagree? I myself used to believe bitcoin was the greatest store of value ever created,
but after giving it a lot of thought I no longer believe that is the case, and here is why.


1. People often say bitcoin is a store of value, but in the same breath also tell you it is highly volatile.
Those are two contradictory things. A store of value has to be more or less stable in price. It cannot be both
highly volatile and a good store of value imo.

When something is very volatile, it tends to shake people out and cause them to panic and sell.
That is why most people will not be able to HODL bitcoin for long. Of course there are some hardcore HODLers
who are able to hold it for many years (I was one of them) but they are the exception not the rule.

HODLing and "never sell your bitcoins" are nice slogans but in reality it is easier said than done for most.

2. Bitcoin doesn't have a stable source of demand.

By that I mean there is little to no demand for bitcoin beyond speculation. For example, Apple has a strong stable source of
(non-speculative) demand because billions of people in the world are buying iPhones and Mac computers every day.
Only 10 to 20% of demand comes from people speculating on Apple stock while 80 to 90% is from commercial product sales.
That contributes to the price stability for Apple. Same thing for gold. The primary source of demand for gold is the commercial
market for jewelry and other products. Unlike bitcoin gold doesn't rely on the speculation market nearly as much and is
what helps makes gold such a good store of value.

3. It is easy to HODL it when prices were low.

In the early days of bitcoin there were many bitcoin OGs who bought it very cheaply. You can buy one bitcoin for a few dollars,
or even a hundred bitcoins for very little. Of course, it is easy for you to HODL it for many years even during extreme volatility,
because it cost you almost nothing. Even if the price goes to zero you aren't losing much.

But it is not so easy to HODL for those who bought in later when prices are much higher, because you now have a lot more to lose.
When the volatility hits you are more likely to hit the sell button. That is why the path from zero to $100K is a lot easier.

But the path from $100K to $200K will probably be much tougher and longer IMO, assuming it will get that high.


4. Bitcoin is too correlated to risk assets and the economy.

When the economy tanks so do risk assets such as bitcoin. Which shows that people do not generally view bitcoin as a flight to safety
or a good store of value when times are bad. To the contrary it is one of the first things that gets dumped. Again, this is tied
to the fact that bitcoin has no strong or stable source of demand outside of speculation. Without it bitcoin may be forever
destined and limited to the niche market.

yeah i see your point people dont take bitcoin as a serious investment when the global economy is in decline. from the past experiences we can see this to be true where people are scared to keep their money in bitcoin and it starts to dip when there is no stainability. it was worth risk back in the day for a few dollars but now the amount is not worth risking. gold is a better long term invest even if it dosnt rise as much as bitcoin it is stable 

[henry_of_skalitz]

Why BTC can't be both is my question for the OP.

Well, the logic is simple in this case. If Bitcoin is the store of value, it needs to have a stable demand or in other words, the bitcoin shouldn't be too volatile as it is behaving in current times. People consider a store of value for those coins which do not lose value and is constantly in more of an uptrend.

Check the Gold price action, and you will see its gradually increasing in price and also the dumps aren't too big as with Bitcoin. That's the reason people consider Gold as a store of value and bitcoin still needs more time to prove the same. Although Gold supply isn't limited, but bitcoin supply is limited and that is an advantage of bitcoin over Gold.

Long term, it keeps the value where it needs to be, but, yeah, volatility will become smaller and smaller anyways. Maybe then people won't ask such things.

[vanesha]

It shouldn’t be considered the absolute best option, but rather one of the best options available. In fact, Bitcoin isn’t wrong in the points you mentioned—it is still suitable as a store of value, but it requires closer attention because of those factors. Even though Bitcoin may not fully meet all expectations as a perfect store of value, it can still provide solid returns if we understand it and manage it properly.

[nemesis_incarnate]

It shouldn’t be considered the absolute best option, but rather one of the best options available. In fact, Bitcoin isn’t wrong in the points you mentioned—it is still suitable as a store of value, but it requires closer attention because of those factors. Even though Bitcoin may not fully meet all expectations as a perfect store of value, it can still provide solid returns if we understand it and manage it properly.

Definitely agree with the first point.

BTC is just that reliable, and nothing beats it at this factor

[Dogedegen]

I don't agree with you on this. No company or individual would do mining if they are not making profits from it, because mining costs quite a lot of money considering how the difficulty has increased over the years, now you need to have pretty heavy equipment and quite a few of them to even be able to reach ROI within a few months or so, some might not even reach ROI within a few months. Those who get into mining only do it so that they can make money from it, it's all about getting bitcoins from the network, and not because they want to support the network, they know there are already enough people in this business, and they don't necessarily need to do it.

But what is there to disagree? There are many communities of small miners that do things this way. I have many friends who run 1-10 machines depending on their circumstances and they are never shut down. Even this last year we saw a couple of times of some solo miners actually mining a block. Do you believe all solo or home miners always run machines in profit? Additionally, people who have several businesses do run some in negative performance for certain amounts of time and this can be for any number of reasons. Mining is not something that you turn on or off just because the immediate ROI has collapsed. The biggest capital expenditure is the hardware and once it has been purchased, that capital is spent. The only remaining thing is the marginal cost which in their case is largely electricity. If their operation is very good which can mean anything from using stranded energy to having solar power or cheap power, they will continue to mine even if temporarily the ROI says that they are unprofitable. If mining was as you claim only about short term profits, the hash rate would collapse immediately every time Bitcoin dipped. This is not the case, we see gradual reductions over time.

Anything that people do these days is only done for money. I don't know what makes you think that those who hold a stash of bitcoins will do mining only to support the network even if they are not making any money from it.

This is a false argument that is easily disproved with a single example. Why are people sponsoring Bitcoin Core developers when they are not making any money from that? Our reality is more complicated, it is time to familiarize yourself with the concept of incentives and long-term vision. Forget the narrow minded focus on short term cash. There is benefit in securing the network even if you are mining at a loss. Many individuals or some entities even may not care at all about making profit, instead they can see the marginal cost of expending energy as an investment into the security of Bitcoin. While they are burning fiat to do this, they are giving more security to Bitcoin and with that more value to their Bitcoin balance.

It shouldn’t be considered the absolute best option, but rather one of the best options available. In fact, Bitcoin isn’t wrong in the points you mentioned—it is still suitable as a store of value, but it requires closer attention because of those factors. Even though Bitcoin may not fully meet all expectations as a perfect store of value, it can still provide solid returns if we understand it and manage it properly.

Definitely agree with the first point.

It is an AI post.  

[Proty]

 I believe those that has been holding bitcoin for long will see things from different lime light. Bitcoin has proven itself over the years to be a good store of value. It is only those that are into bitcoin with the mindset of making quick profit that will think negatively about bitcoin investment.
You hold bitcoin at all time and not only when the price is low , unless you are planning to hold for a short term which is very risky. Those that plan to hold bitcoin for like 10years can hold it even when the price is high.

[Xxmodded]

Do you agree or disagree? I myself used to believe bitcoin was the greatest store of value ever created,
but after giving it a lot of thought I no longer believe that is the case, and here is why.


1. People often say bitcoin is a store of value, but in the same breath also tell you it is highly volatile.
Those are two contradictory things. A store of value has to be more or less stable in price. It cannot be both
highly volatile and a good store of value imo.

When something is very volatile, it tends to shake people out and cause them to panic and sell.
That is why most people will not be able to HODL bitcoin for long. Of course there are some hardcore HODLers
who are able to hold it for many years (I was one of them) but they are the exception not the rule.

HODLing and "never sell your bitcoins" are nice slogans but in reality it is easier said than done for most.

2. Bitcoin doesn't have a stable source of demand.

By that I mean there is little to no demand for bitcoin beyond speculation. For example, Apple has a strong stable source of
(non-speculative) demand because billions of people in the world are buying iPhones and Mac computers every day.
Only 10 to 20% of demand comes from people speculating on Apple stock while 80 to 90% is from commercial product sales.
That contributes to the price stability for Apple. Same thing for gold. The primary source of demand for gold is the commercial
market for jewelry and other products. Unlike bitcoin gold doesn't rely on the speculation market nearly as much and is
what helps makes gold such a good store of value.

3. It is easy to HODL it when prices were low.

In the early days of bitcoin there were many bitcoin OGs who bought it very cheaply. You can buy one bitcoin for a few dollars,
or even a hundred bitcoins for very little. Of course, it is easy for you to HODL it for many years even during extreme volatility,
because it cost you almost nothing. Even if the price goes to zero you aren't losing much.

But it is not so easy to HODL for those who bought in later when prices are much higher, because you now have a lot more to lose.
When the volatility hits you are more likely to hit the sell button. That is why the path from zero to $100K is a lot easier.

But the path from $100K to $200K will probably be much tougher and longer IMO, assuming it will get that high.


4. Bitcoin is too correlated to risk assets and the economy.

When the economy tanks so do risk assets such as bitcoin. Which shows that people do not generally view bitcoin as a flight to safety
or a good store of value when times are bad. To the contrary it is one of the first things that gets dumped. Again, this is tied
to the fact that bitcoin has no strong or stable source of demand outside of speculation. Without it bitcoin may be forever
destined and limited to the niche market.

yea i hear what you saying however every market is like this its not just a bitcoin problem. all different types of markets such as gold and estate can be just as volatile as bitcoin when the economy suffers. when times come where for some reason the economy suffers whether that be pandemics, scandals or war markets sufferer in some way it just a knock on effect that cant be stopped as people what there assets to be saft so say for example the economy suffered people would pull out of bitcion and places there money in gold as for that moment it the safest option but when the economy comes back to a good place they would take there money from gold and put it back into bitcoin while the dip has already occurred.

[fikrett]

I believe those that has been holding bitcoin for long will see things from different lime light. Bitcoin has proven itself over the years to be a good store of value. It is only those that are into bitcoin with the mindset of making quick profit that will think negatively about bitcoin investment.
You hold bitcoin at all time and not only when the price is low , unless you are planning to hold for a short term which is very risky. Those that plan to hold bitcoin for like 10years can hold it even when the price is high.

to do so, people need to understand why they do it. otherwise, they will see it as one-time activity or not go into the details.. leading to different outcomes, and some of them would not be so pleasant.

[Cleanslate_]

It does not work as a store of value because of its volatility, speculative nature, lack of intrinsic, no comparism between the world utility and not traditional assets, the scarcity and limitation of bitcoin in 21 million which value has always being pursued by the market sentiment, it is also risky and has a long-term value protection against inflation.

[Smartvirus]

It shouldn’t be considered the absolute best option, but rather one of the best options available. In fact, Bitcoin isn’t wrong in the points you mentioned—it is still suitable as a store of value, but it requires closer attention because of those factors. Even though Bitcoin may not fully meet all expectations as a perfect store of value, it can still provide solid returns if we understand it and manage it properly.

Bitcoin isn’t a perfect store of value because, it’s not a stable asset, gold as well isn’t stable but, it’s not as volatile as we have in Bitcoin. Bitcoin is way too volatile although, no matter how it dumps, it’s still got the ability to regain its declined value but, when it’s dumping and you bought Bitcoin at a high price, you become a lot uncomfortable and it gets worse when you don't really understands the rudiments of Bitcoin market and price.

[fuguebtc]

Why BTC can't be both is my question for the OP.

Well, the logic is simple in this case. If Bitcoin is the store of value, it needs to have a stable demand or in other words, the bitcoin shouldn't be too volatile as it is behaving in current times. People consider a store of value for those coins which do not lose value and is constantly in more of an uptrend.

Check the Gold price action, and you will see its gradually increasing in price and also the dumps aren't too big as with Bitcoin. That's the reason people consider Gold as a store of value and bitcoin still needs more time to prove the same. Although Gold supply isn't limited, but bitcoin supply is limited and that is an advantage of bitcoin over Gold.

I think you are confusing a store of value with a safe haven. They have many similarities but are actually different, and while Bitcoin is not yet a safe haven, it is already a store of value.
Even bluechip stocks like AAPL, MSFT, or Coca Cola are considered stores of value. So why can not Bitcoin, an asset that also increase in value over time, be considered a store of value?

By the way, gold has a finite supply rather than an infinite one, while Bitcoin has a fixed supply