What is a Store of Value?
A Store of Value (SOV) is anything that retains purchasing power into the future. Something that people are using to store their wealth. This can be gold, fiat money, stocks, bonds, real estate, diamonds, commodities, etc.
Is Bitcoin a good store of value?
The attributes of a good Store of Value (SOV)
(Text by Vijay Boyapati, The Bullish Case for Bitcoin, Medium post)
“When stores of value compete against each other, it is the specific attributes that make a good store of value that allows one to out-compete another at the margin and increase demand for it over time. While many goods have been used as stores of value or “proto-money”, certain attributes emerged that were particularly demanded and allowed goods with these attributes to out-compete others.
An ideal store of value will be:
- Durable: the good must not be perishable or easily destroyed. Thus wheat is not an ideal store of value
- Portable: the good must be easy to transport and store, making it possible to secure it against loss or theft and allowing it to facilitate long-distance trade. A cow is thus less ideal than a gold bracelet.
- Fungible: one specimen of the good should be interchangeable with another of equal quantity. Without fungibility, the coincidence of wants problem remains unsolved. Thus gold is better than diamonds, which are irregular in shape and quality.
- Verifiable: the good must be easy to quickly identify and verify as authentic. Easy verification increases the confidence of its recipient in trade and increases the likelihood a trade will be consummated.
- Divisible: the good must be easy to subdivide. While this attribute was less important in early societies where trade was infrequent, it became more important as trade flourished and the quantities exchanged became smaller and more precise.
- Scarce: As Nick Szabo termed it, a monetary good must-have “unforgeable costliness”. In other words, the good must not be abundant or easy to either obtain or produce in quantity. Scarcity is perhaps the most important attribute of a store of value as it taps into the innate human desire to collect that which is rare. It is the source of the original value of the store of value.
- Established history: the longer the good is perceived to have been valuable by society, the greater its appeal as a store of value. A long-established store of value (SOV) will be hard to displace by a new upstart except by force of conquest or if the arriviste is endowed with a significant advantage among the other attributes listed above.
- Censorship-resistant: a new attribute, which has become increasingly important in our modern, digital society with pervasive surveillance, is censorship-resistance. That is, how difficult is it for an external party such as a corporation or state to prevent the owner of the good from keeping and using it. Goods that are censorship-resistant are ideal to those living under regimes that are trying to enforce capital controls or to outlaw various forms of peaceful trade.”
Read the full blog post here: Vijay Boyapati, The Bullish Case for Bitcoin, Medium post
Bitcoin Price Volatility and Bitcoin as Store of Value (SOV)
In the bigger picture, Bitcoin is leading the crypto-market to develop an alternative Store of Value in digital sound money versus the negative interest rates in an increasing number of counties.
Bitcoin will continue to gain traction as a unique asset class. Longterm, the volatility will continue to decline. However short-term, it is expected to increase. While value (money) moves from today’s store of value (e.g. stocks) into Bitcoin, this will increase volatility.
Bitcoin may not be practical as a medium of exchange for day-to-day transactions. This is not needed, you don’t need Bitcoin to pay for coffee. As you don’t need Gold today to buy a coffee. Money is fine for that. Yet Bitcoin has as store-of-value many favorable attributes, notably portability and limited supply.
You can compare Bitcoin for the time being with the idea of “pure digital gold,” Its unique nature as a scarce and decentralized asset make this possible. In addition, Bitcoin is censorship-resistant, unlike gold, and it exists as digital money and fast transfers for the internet.
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