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

[Hanadawa]

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 agree that Bitcoin still can't be as good a store of value as gold. Bitcoin's price is highly volatile, so it's still considered a high-risk asset. Unlike gold, which is considered a safe haven and a very low-risk asset. However, I believe in Bitcoin as a hedge against inflation. Although Bitcoin can experience price drops more severe than inflation, so far I've seen it almost always outperform inflation. High-risk assets like Bitcoin also offer higher rewards than gold. This is why Bitcoin is considered one of the best high-risk investments today.

[pawanjain]

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.

Bitcoin is a very good asset as a store of value because it holds its value in the long run.
A good store of value is something that gives good returns in the long run especially when setting off with inflation.
Bitcoin does that very well.

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

It is easy to hold no matter what the price is. It all depends on our risk taking capability.
If we are good at managing risks, we will be able to hold bitcoin at whatever price it is.

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

I think bitcoin has already proven that it stood out during bad economic times.
The latest example is during the covid. Obviously it did impact bitcoin initially but it pumped hard later on.
Bitcoin is the best asset to hold during covid as it had surged massively.
So in short, I believe bitcoin is a perfect asset to hold as a store of value.

[Luzin]

I agree that Bitcoin still can't be as good a store of value as gold. Bitcoin's price is highly volatile, so it's still considered a high-risk asset. Unlike gold, which is considered a safe haven and a very low-risk asset.

They do not like instability that leads to losses. And this is why many governments still very rarely make Bitcoin an official national reserve. If this instability were profitable, I think official governments might start to take notice. But this is the condition that must happen with Bitcoin. The law of rise and fall must occur because trading wants that moment. Bitcoin without instability is very bad and harmful. Perhaps more and more people will start to leave Bitcoin if its value is stable.

[d5000]

Bitcoin isn't a stable store of value yet, but it is a hard store of value.

I like this definition.
‎

‎Scarcity: It's the only asset where demand cannot trigger more supply, unlike Gold mining or fiat printing

You're correct about "hard", on-chain bitcoins. There's however a little catch on this.

85-90% of all Bitcoin users, at least, do not own Bitcoin on-chain but on a centralized platform or exchange. These exchanges, in theory, can "print" fiat Bitcoin IOUs. The incentive for this is higher when the price of Bitcoin is high, so for this kind of "Bitcoin-derived asset" there is a certain supply flexibility.

Unfortunately, these Bitcoin IOUs can move the price if there are too many of them.

We cannot onboard all 100 million Bitcoin users to the Bitcoin blockchain. But if people used decentralized 2nd layers (Lightning, sidechains, and also Ark) there would be less incentives for this kind of "Bitcoin IOU printing". A

Conclusion: Propagating "not your keys, not your coins" makes Bitcoin harder.
‎

‎The volatility will only die down when the market cap is large enough that single whales can't move the needle. Until then, it’s a store of value for those who can stomach a 50% drop without blinking.

I disagree here, even if there may be some correlation. It's more important to boost liquidity than market cap. The best way to do so would to propagate and incentive the usage as a currency.

[GiftedMAN]

They do not like instability that leads to losses. And this is why many governments still very rarely make Bitcoin an official national reserve. If this instability were profitable, I think official governments might start to take notice. But this is the condition that must happen with Bitcoin. The law of rise and fall must occur because trading wants that moment. Bitcoin without instability is very bad and harmful. Perhaps more and more people will start to leave Bitcoin if its value is stable.

Watch Bitcoin recover and reach a new height then see people who said it's not a good store of value praise it and wish they had invested when it was cheaper. Bitcoin is a long-term asset a volatility is not a criteria to say it doesn't suit being a good store value. If anyone doesn't have patience to buy and hold it longer then they shouldn't do it at all cause they'll be disappointed. Bitcoin investment is for people who are futuristic not short-term investors.

[purple_sparkles]

I think one of the reasons why governments do not accept bitcoin is that they still don’t understand how its volatility could be managed within the budget of an entire country. It would also require rewriting existing legislation, which demands complex analysis.In addition, if bitcoin were included in the state budget, it would mean greater public oversight. And since some politicians may use bitcoin to hide or launder corrupt money, increased government involvement could expose them to unwanted scrutiny and investigations.

[Dogedegen]

Bitcoin isn't a stable store of value yet, but it is a hard store of value.
‎

That is a good clarification and it is very true.

‎Scarcity: It's the only asset where demand cannot trigger more supply, unlike Gold mining or fiat printing

Yes I think I have read some posts about this, with metals like gold and silver they just try to mine more when prices are better. Well it works with most things, they look for new locations to extract more. With Bitcoin this is not possible.

‎Liquidity: I can move $10M of value across the world in 10 minutes. Try doing that with physical Gold during a crisis.
‎

With banks it can also be terrible. Some people say that it is not so because they never had any bad experience, but that does not reflect the experience of everyone. In international transactions I even had issues once when transferring money between my accounts and the amounts were not even significant or unusual. The current system sucks.

‎The volatility will only die down when the market cap is large enough that single whales can't move the needle. Until then, it’s a store of value for those who can stomach a 50% drop without blinking.

But what number would you put that at? $10 trillion? $20 trillion or even more than that?

85-90% of all Bitcoin users, at least, do not own Bitcoin on-chain but on a centralized platform or exchange. These exchanges, in theory, can "print" fiat Bitcoin IOUs. The incentive for this is higher when the price of Bitcoin is high, so for this kind of "Bitcoin-derived asset" there is a certain supply flexibility.

Unfortunately, these Bitcoin IOUs can move the price if there are too many of them.

The main issue with paper Bitcoin for me is that we can't even estimate how many there are at any point in time, we can just randomly guess but there is no good way to measure this. Some amounts of paper Bitcoin are not a problem for me if we are talking about let's say something extreme, 1-2% but if we are talking about 10, 20, 50 percent then we have a big issue.

Conclusion: Propagating "not your keys, not your coins" makes Bitcoin harder.
‎

We definitely must always do this, but there must also be solutions that provide extreme security by default. Hardware wallets are a good start, but things are not so simple when you start having a lot of wealth in Bitcoin but do not have technological knowledge or experience. It is not like you can just buy a Trezor, store $50 million on it and forget about it not having to worry about anything ever. Even the question about where to store it, how to backup it and store the backup and stuff like that brings worries on its own.

I disagree here, even if there may be some correlation. It's more important to boost liquidity than market cap. The best way to do so would to propagate and incentive the usage as a currency.

You are right, but I think in an asset or naturally evolving market that does not have extreme manipulation these things come hand in hand? Usually liquidity improves as the market cap grows, so we could say that it is a little bit implied?

[d5000]

The main issue with paper Bitcoin for me is that we can't even estimate how many there are at any point in time, we can just randomly guess but there is no good way to measure this.

I've googled a bit about estimations, but indeed there are none.

But a point of departure could be the "paper BTC" without Proof of Reserves. According to this post they make up about 47% of all paper Bitcoin, or about 1.26 million BTC. So as a maximum value we can talk about ~5% of the total supply.

I guess the problem are the many BTC on smaller exchanges, swap services, etcetera. The big exchanges have mostly a PoR policy and independent audits. However, I don't know how good these audits are.

You are right, but I think in an asset or naturally evolving market that does not have etreme manipulation these things come hand in hand? Usually liquidity improves as the market cap grows, so we could say that it is a little bit implied?

Think about the different usage patterns. HODLing comes only with liquidity if people hold for a shorter term. Trading creates liquidity, but also creates imbalances due to leveraged positions which can be liquidated leading to harsh volatility. While currency usage creates liquidity without that problem.

Thus, if we have a "store of value" Bitcoin, we will have (potentially drastically) lower liquidity than with a currency- or trading-dominated Bitcoin. While there may be some correlation with market cap, usage patterns probably are much more important.

[SeriouslyGiveaway]

I've googled a bit about estimations, but indeed there are none.

But a point of departure could be the "paper BTC" without Proof of Reserves. According to this post they make up about 47% of all paper Bitcoin, or about 1.26 million BTC. So as a maximum value we can talk about ~5% of the total supply.

I guess the problem are the many BTC on smaller exchanges, swap services, etcetera. The big exchanges have mostly a PoR policy and independent audits. However, I don't know how good these audits are.

Centralized exchanges did not proactively do Proof of Reserves and audits years ago and they only changed their approaches to do these things after two big collapses of Terra and FTX exchange. With critiques and pressure from cryptocurrency community, centralized exchanges began to provide PoR and audits but we all know through history that we can never entirely trust these things.

Having Proof of Reserves and Audits is good but it's not like a golden mark of anything, just for reference and generally we must be responsible with our fund.
Reminder: do not keep your money in online accounts

[OsaiEmma]

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.

Even though Bitcoin seems to be volatile, that doesn't mean it is not a store of value, volatility isn't like the opposite of it. And it's purchasing power keeps increasing over time, so the volatility is as a result of how active the asset is in the market, it shows huge adoption, if with its volatility it's purchasing power drops over time, then that's an issue, but rather, we always see an increase, so it can be seen as a store of value.

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.

If this were true, then we won't be noticing the high volatility we are noticing. It's true that financial institutions classifies Bitcoin as security, digital assets, and all that. It is also true that it has no physical representation, but when it comes to usage, it do have good utility, and demand, one such is it's usage for payment services, both local and international. So even if it is a speculative asset, it still have a reasonable demand market.

[john_egbert]

I've googled a bit about estimations, but indeed there are none.

But a point of departure could be the "paper BTC" without Proof of Reserves. According to this post they make up about 47% of all paper Bitcoin, or about 1.26 million BTC. So as a maximum value we can talk about ~5% of the total supply.

I guess the problem are the many BTC on smaller exchanges, swap services, etcetera. The big exchanges have mostly a PoR policy and independent audits. However, I don't know how good these audits are.

Centralized exchanges did not proactively do Proof of Reserves and audits years ago and they only changed their approaches to do these things after two big collapses of Terra and FTX exchange. With critiques and pressure from cryptocurrency community, centralized exchanges began to provide PoR and audits but we all know through history that we can never entirely trust these things.

Having Proof of Reserves and Audits is good but it's not like a golden mark of anything, just for reference and generally we must be responsible with our fund.
Reminder: do not keep your money in online accounts

Yep. It's the neccesity basically after what happened. People want to be sure and have facts on the table they won't get the same situation all over again. But it doesn't mean much.. because it can still happen, albeit with chances lower and having more info on hands.

[knowngunman]

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.

I assume you prefer saving raw cash or saving in traditional banks because this is the only way you can save and expect a stable price of your asset. But as for the value, that's never guarantee with any of this option. If you invest in estate, your property value increases and decreases over time depending on the condition the property is. Likewise, gold as the most popular traditional way of storing value has not stable price, it increases and decreases but not as volatile as bitcoin. This is a common feature and you shouldn't expect bitcoin to be different in any way.

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

Never sell your bitcoin? This slogan is never meant to be practice. It's just a slogan to promote long term holding. If you never sell, I see no point of holding in the first place.

[ndutndut]

They do not like instability that leads to losses. And this is why many governments still very rarely make Bitcoin an official national reserve. If this instability were profitable, I think official governments might start to take notice. But this is the condition that must happen with Bitcoin. The law of rise and fall must occur because trading wants that moment. Bitcoin without instability is very bad and harmful. Perhaps more and more people will start to leave Bitcoin if its value is stable.

Watch Bitcoin recover and reach a new height then see people who said it's not a good store of value praise it and wish they had invested when it was cheaper. Bitcoin is a long-term asset a volatility is not a criteria to say it doesn't suit being a good store value. If anyone doesn't have patience to buy and hold it longer then they shouldn't do it at all cause they'll be disappointed. Bitcoin investment is for people who are futuristic not short-term investors.

Yes, that's right. Only forward-thinking people believe that Bitcoin is a store of value. BTC has several fundamental characteristics that support it and function well as a store of value. BTC's supply is limited to only 21 million BTC and mining will end around 2140. Furthermore, BTC is not controlled by any government central bank or single company. It is resistant to censorship and confiscation and BTC is easier to use because it can be sent across borders in minutes at a relatively low cost.

Furthermore, institutional adoption continues to grow and some countries are now considering strategic reserves. Furthermore, in an era of high government debt and unlimited money printing, BTC can be considered an asset that cannot be printed anymore because its supply is fixed. Therefore, with the credibility of BTC, I conclude that BTC will become increasingly evident as a store of value especially for those of us with a forward-thinking outlook who are concerned about long term inflation.

[Abiky]

Yes, that's right. Only forward-thinking people believe that Bitcoin is a store of value. BTC has several fundamental characteristics that support it and function well as a store of value. BTC's supply is limited to only 21 million BTC and mining will end around 2140. Furthermore, BTC is not controlled by any government central bank or single company. It is resistant to censorship and confiscation and BTC is easier to use because it can be sent across borders in minutes at a relatively low cost.

Furthermore, institutional adoption continues to grow and some countries are now considering strategic reserves. Furthermore, in an era of high government debt and unlimited money printing, BTC can be considered an asset that cannot be printed anymore because its supply is fixed. Therefore, with the credibility of BTC, I conclude that BTC will become increasingly evident as a store of value especially for those of us with a forward-thinking outlook who are concerned about long term inflation.

BTC can be whatever you want it to be. It's just that mainstream media and "Wall Street" have spread propaganda that Bitcoin is "Digital Gold". Now most people only rely on it as a store of value (or a means to generate wealth). Not as a tool or currency for daily payments.

I think the OP is disappointed with Bitcoin's short-term performance. This is completely normal. It doesn't mean that BTC has "failed" as a store of wealth. This is more of a long-term thing, where you just buy and "hodl" BTC and wait until it reaches a new ATH. History has shown us that with every halving, comes a major breakthrough in market prices. Bitcoin has managed to outperform Gold and every other asset on Earth. Long-term speaking, of course. Gold is less volatile than BTC, so it's often considered a better choice for anyone wanting to protect their capital from "harm's way". The time will come when BTC goes all the way to the moon. We just have to be patient. Good luck.