Many crypto investors throw around the term "store of value". A lot of BItcoin enthusiasts claim Bitcoin is the best digital "store of value" and also they claim that the "market has spoken". In this article, We will look into what is a store of value and a brief history lesson on the different store of value assets over time.
What is a store of value?
A store of value is the function of an asset that can be saved, retrieved and exchanged at a later time, and be predictably useful when retrieved. More generally, a store of value is anything that retains purchasing power into the future.
In laymen's terms, A store of value is something you get to store the wealth/value you have now to exchange for something else at a later date usually after a few years or even decades.
A Brief History of Store of Value Assets
Historically there were many different assets in which people chose to store value. Some of those asset classes are used as a store of value to this day. Let us go over a few store of value asset classes that stood the test of time.
Government Bonds
The bond is debt-based security, when an entity issues a bond, the issuer owes the holders a debt and is obliged to pay the holders an interest or repayment of principal at a later date. Entities like governments and corporates issues bond and market participants store their value in these bonds because bonds are usually issued by a highly trustworthy entity with a very low chance of default.
Precious Metals
Precious metals are rare, naturally occurring metals. These rare metals were used as a store of value throughout history among different cultures. Gold and silver are the most common precious metals. Precious metals get their value because they are rare, easily divisible and verifiable.
Real Estate
Immovable properties like land, buildings and farmlands were always considered a good store of value. Since buildings and farmlands are tied to the essential human needs of food and shelter, real estate tends to be one of the very reliable store of value assets.
Why timeframe is critical when studying store of value assets
In ancient times, for a brief period of time salt was traded for gold. Since salt was an essential commodity and humans didn't get efficient at extracting salt from the ocean, salt was a rare commodity with high demand. During this brief period, one could have used salt or gold interchangeably as a store of value but over time salt became an abundant commodity and Gold still remains as a store of value after thousands of years.
Someone could have stored their wealth as salt without any problems for a while but that strategy would not have worked for a longer time frame. Eventually gold won the store of value status because the properties associated with precious metals enabled gold to transfer wealth across generations.
Source: https://www.ancient-origins.net/history-ancient-traditions/salt-trade-0011802
Store of value without the medium of exchange
You may notice historically people used something that they can exchange for stuff also as a store of value. This raises the question that whether an asset can be a store of value without being a medium of exchange. This particular question is the center of the block size debate among Bitcoin small blockers and Bitcoin cash big blockers. So, let us take a look at the relationship between the store of value and medium of exchange.
If you look at the definition of the store of value, it is essential that the asset needs to be exchanged at a later date. Exchangeability is something a store of value asset should inherently have. Think about it, why would you save something if you can't exchange it for something else later?
Let us look into what Ludwig Von Mises has to say about the function of money and the store of value.
Source: https://mises.org/wire/ludwig-von-mises-and-nature-money
Bitcoin small block supporters argue that gold wasn't a good medium of exchange but it is still a good store of value but they fail to address that physical gold was primarily used as a medium of exchange before the fiat monetary system came into effect. as a matter of fact, exchanging physical gold that can be verified by both parties was the first form of decentralized peer-to-peer electronic cash.
What Bitcoin pundits get wrong?
To understand why so many bitcoin evangelists don't understand the concept of the store of value, we need to recall how an asset is classified as a store of value. Store of value is a function of the market and time. An asset has to withstand the test of time and has to withstand the painful elimination process by the market.
Bitcoin may be the preferred store of value now but when market participants change their opinion on that, Bitcoin will decline like salt and other hundreds of intermediate store of value assets that came before.
Those who say things like, "The market has spoken" and "Bitcoin is the store of value project", simply don't understand that nobody can set out to build a store of value project, if that is possible everyone would be trying to build one and become super-wealthy.
Only the market chooses a store of value
A store of value is chosen by the market after a lot of wasted capital and trial and error, there is no way around it. A store value status is a function of time and money. Only when market participants agree to store value in an asset over a long period of time and exchange that value successfully after a few decades or even centuries, we can agree that an asset class has achieved store of value status.
Has the market decided on a digital store of value?
The short answer is, no. It is too early to tell. By the very definition, A store of value has to hold value and should be able to exchange that value for stuff after a long period of time. Bitcoin has been around for just over a decade. Sure, Bitcoin has appreciated in value a lot. But increase in price isn't enough to conclude that Bitcoin is the digital store of value. The market participants will eventually agree on a digital store of value maybe after a few decades. Bitcoin has to survive the elimination process by the market to make it.
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