Is Bitcoin Still a Store of Value?

On Monday, Bitcoin followed the broader market’s trend and fell to nearly $50,000, which was its lowest point since February. However, it managed to recover some of its losses by midday in New York, standing at $53,387.67, a 9% decrease over the past 24 hours.

For those who question Bitcoin’s reliability, they might find themselves quoting a classic Billy Crystal joke: “So, where is your promised savior now?”

“Joe Weisenthal, a columnist for Bloomberg, excitedly remarked on X (previously known as Twitter), that the theory that Bitcoin serves as a store of value is currently being challenged. He suggested that Bitcoin resembles more like three high-tech stocks disguised as one entity.”

But there’s a more nuanced view on this question that requires zooming out the figurative lens.

In simpler terms, my colleague Andy Baehr, who leads product development at CoinDesk Indices, stated that we should not mix up assets that function as a store of value with those considered flight-to-quality. Store-of-value assets are associated with long-term expectations, while flight-to-quality assets have characteristics related to market conditions and swift movements in the market.

The “long term” part is key.

On a day reminiscent of the infamous ‘Black Monday’ of 1987, with the Nikkei plummeting by 12%, I find myself noting an increased interest in U.S. Treasury bonds. As panic sets in and investors seek safety, these bonds often emerge as the preferred ‘flight-to-quality’ assets. To put it simply, when markets are volatile like they are today, everyone seems to be flocking towards U.S. Treasury bonds. Interestingly, Treasury yields, which move inversely with prices, have reached their lowest levels since January, indicating a high demand for these securities.

Bitcoin clearly doesn’t enjoy flight-to-quality status.

“Baehr stated, ‘This asset can be unpredictable and often involves speculation. It may also be highly leveraged in some cases. However, its unique qualities – its rarity, transportability, and detachment from government or corporate policies – suggest it could be an intriguing option for long-term value storage.'”

Individuals considering Bitcoin may view it not just as a buffer against short-term market fluctuations, but more like a safeguard against the gradual devaluation of the U.S. dollar‘s buying power. Unlike the dollar, the supply of Bitcoin is predetermined and capped at 21 million, making it unaffected by the decisions of policy makers.

“People who keep it for extended durations, particularly those worried about issues like the country’s debt, monetary policies by the central bank, and such factors, seem to view the increase in bitcoin’s value as less significant than the weakening of the currency’s overall worth,” Baehr explained.

It might sound surprising, but an asset can function both as a means of storing value and as a risk asset simultaneously. To clarify, those who utilize Bitcoin as a storage for value understand that it’s subject to fluctuations in value.

Arthur Breitman, one of the founders of the Tezos blockchain network and a veteran in cryptocurrencies, pointed out that Bitcoin’s ability to resist seizure contributes to its role as a “different form of value storage.”

“Bitcoin is a good store of value if … bank accounts are being seized,” he wrote in a reply to Weisenthal on X. “It’s contextual.”

In response to Weisenthal’s post, Dan McArdle (co-founder of Messari, a cryptocurrency data service) shared a previous comment where he predicted Bitcoin’s behavior under various catastrophic circumstances.

In a crisis involving liquidity, the asset is expected to decline in value, as stated by McArdle in 2018. On Monday, we witnessed such a scenario unfolding. Conversely, when there are concerns about sovereign debt or confidence in fiat currencies, the asset may increase in value, which could be seen as an instance of the latter.

As for a more time-tested store of value, the price of gold was down about 1% Monday afternoon.

Alex Thorn, head of research at Galaxy Digital, pointed out that it’s not fair to evaluate bitcoin as a store of value based on something as mature as gold, given that bitcoin is still in its early stages.

Investing in Bitcoin can be likened to taking a risky, long-term wager on its role as a future asset for storing value. This is because Bitcoin is still gaining traction, which explains its unpredictable nature and promising growth prospects.