Throughout the history of mankind, people are always in search of hedge tools to keep their savings long-term without losing initial value. Precious metals as silver or gold, real estate or pieces of art still remain amongst the best time-proven investment options. Recently, a digital alternative has appeared, Bitcoin. It is the number one cryptocurrency which is believed by many users and supporters to become the contender to traditional stores of value. Let’s consider the pros and cons if such rivalry can be and whether an option to buy Bitcoin and hold it can serve as a viable haven in the long run?
What Is a Store of Value?
A store of value is “any form of wealth that maintains its value without depreciating,” by Investopedia. Such an asset can be kept, preserving its initial value in time and can be easily exchanged. It’s important that a store of value has an essential risk management feature, because there is a stable natural demand for it. Stores of value can vary greatly throughout the world, and anything can perform this function if there exists a basic demand for this thing.
Although currently there are some rather stable and widely accepted world currencies as US Dollar, Japanese Yen, or Euro, which can be considered a kind of store of value, they all are ‘inflationary’, meaning there’s no cap for issuing them, and ‘fiat’, i.e. they have no intrinsic value and are nothing but a legal tender by the government.
Gold as a Store of Value
Gold, on the contrary, is not inflationary, it has a proven record as an acceptable and reliable store of value and a safe haven asset for thousands of years. Many economies were backed up by precious metals as they were thought to be the best investment for their durability, easy transportation and enduring value.
For instance, the US Dollar had been on the Gold Standard before 1971, when Richard Nixon, the US President, ended this practice and cut the direct link between gold and a banknote. Since that time, the US Dollar has proved to become a rather inflationary fiat currency.
Gold cannot be easily produced as any fiat currency just by simple issuing. It needs time and effort to mine and process it, which certainly makes gold more valuable.The precious metal is widely used in jewelry, electronics and other industries.
Gold has a limited supply, it becomes more scarce day by day due to the almost total depletion of known mines. There will soon come the day, a ‘peak gold’, when the world maximum for mining will be reached. Experts say that since 2017 there has been a decline in production. This peak gold factor will make the gold price rise significantly in the future. As a rule, the gold price can either increase or remain stable while other assets or currencies depreciate. Gold has already been on the bull market recently.
As a store of value, gold always gains even more importance in times of political or economic instability when the demand for it grows crucially. To make a long story short, those investors who seek for a hedge store of value usually choose gold as a reliable time-proven asset in the global bear market.
Can Bitcoin Become Gold 2.0?
Bitcoin is a decentralized digital currency which appeared on the global stage less than a decade ago. It is hard to corrupt Bitcoin due to complicated digital algorithms and encryption methods utilized by the system. The dynamically developing blockchain technology backs it up, making Bitcoin secure and trusted. Some even claim Bitcoin can become ‘Gold 2.0’. What makes Bitcoin an alternative to gold?
- Bitcoin is mined;
- Bitcoin has a limited predicted supply of 21 million tokens;
- Bitcoin’s price only grows in the long run;
- The popularity and credibility of Bitcoin also increases with time, because more and more people start believing and investing in it. The same story happened to gold in the past.
Although the everyday price of any cryptocurrency extremely fluctuates, the long-term value of Bitcoin has been only increasing throughout its history. Since 2009, Bitcoin’s price had grown from zero to the all-time high of $20,000 in the end of 2017. Though recently there has been a correction which almost halved the price of Bitcoin (it hovers around $10,500 on March 7), the value is still expected to increase as the number of Bitcoin is limited.
Crypto enthusiasts all over the world invest in Bitcoin because they do believe that it will follow an upward trend in the long run. The perceived value of Bitcoin, i.e. not the real price but rather the internal feeling of a consumer on how much a product costs, is significantly high. For example, in the end of 2017, the hype around the crypto was so huge that people started treating Bitcoin as the biggest wealth generation opportunity of the century and invested in it extensively.
Some financial experts like Peter Thiel state Bitcoin is still ‘underestimated as a store of value’. If it ceases to be a payment option one day due to the lack of adoption in society, Bitcoin could still be used as “the cyber equivalent of gold”.
Bill Gurley, a general partner at Benchmark, a Silicon Valley venture capital firm and a reputable ex-research analyst on Wall Street, also considers Bitcoin to be ‘an incredible store of value’. He says it could be most beneficial in countries with a lack of trustworthy financial institutions to keep savings long-term as well as those where the government can easily change the value of national currency overnight.
Bitcoin has the biggest market share in the world of cryptos, which makes it the most popular modern speculative trading asset, online payment method, and a statistically proven store of value.
Reasons to buy Bitcoin as a Store of Value
- Bitcoin has maximum similar features with gold, the reputable hedge store of value. Except for the physical form.
- Bitcoin is deflationary. Its value only increases with time as it is a limited, finite resource.
- Bitcoin exists in the secure digital transactions’ framework. By investing in Bitcoin you invest in the innovative Blockchain technology that backs it up.
- Bitcoin has a proven record of making long-term Bitcoin holders rich. It is the only modern asset that has increased in price 10 times within one year.
- Bitcoin’s value hugely depends on the community participation. The more fans support it, the more expensive it becomes.
Step by step Bitcoin becomes mainstream as a store of value. It has a great potential to become the main rival of gold because of its unique finite and deflationary nature. Many people all over the world believe in it, which has brought Bitcoin unprecedented popularity in less than one decade. Bitcoin just needs more time and more positive hype around it to develop and prove its hedge value to the world.