Store of Value

The term “store of value” is often used to describe Bitcoin, but what does it mean? 

To begin, any asset may be considered a store of value if it can be expected to hold its purchasing power. This means that “store of value” assets should either remain stable or increase in value, while also remaining useful in the future. 

There are several properties that are common to assets considered to be good stores of value, although not all are necessary:

• Acceptability – The asset’s value is recognized by a large percentage of the market
• Durability – The asset is likely to be accepted by the market at any point in time.
• Liquidity – The asset can easily be redeemed for a wide variety of other assets. 
• Scarcity – The supply of an asset is quantifiable and unlikely to increase significantly. 

Stores of value assets are used by investors who are more risk averse, as their primary investment thesis is that there is perpetual, stable demand for said asset.
 

Now that you have an overview of what a store of value is, it is important to note that investors tend to diversify their wealth among different stores of value.

Let's dive into some store of value examples.

Currencies

The most common example of a store of value remains traditional government monies thanks to their durability, liquidity, portability and acceptability. 

Importantly, currencies are able to retain purchasing power over time while being the most liquid medium of exchange, meaning that anyone can exchange it for goods and services at any time. 

Of note, government currencies do tend to slowly lose purchasing power due to inflation (caused by the continued increase of their circulating supplies), a fact which has led to criticisms against government monies by cryptocurrency and bitcoin proponents. 

It should also be noted that most government currencies benefit from a lack of market competition, as laws and regulations often stipulate commerce occurring within a nation’s borders be conducted with a specific currency. 

Precious Metals as a Store of Value

Precious metals, such as gold, silver and platinum, are the most commonly used stores of value due to their scarcity, durability and acceptability.

Economies have historically used precious metals to facilitate trade, with many countries initially backing their paper currencies with these naturally occurring commodities. 

Under the “gold standard,” a consumer could even redeem their government money for ounces of gold whenever they wished to. However, most governments today no longer adhere to the gold standard.

Bitcoin Store of Value

Bitcoin is perceived as a strong store of value due to its scarcity, transferability and durability. 

In fact, Bitcoin is often referred to as “digital gold” as it shares many of the same features as its precious metal counterpart. Bitcoin as digital gold is viewed as more divisible and fungible than traditional gold assets. 

Another important characteristic is its ability to operate as a good medium of exchange globally, thanks to its divisibility and scarcity. Unlike any other digital goods before it, Bitcoin was able to trade on an open market with the guarantee it could not be copied or spent twice.

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Other stores of value

Over time, there have been countless attempts at stores of value, ranging from sea shells to barrels of whiskey to anything in between. 

Today, a popular form of store of value can be found in collectibles, such as trading cards and real estate, which are both scarce and desirable in their respective markets. 

Taking it a step further, there is a growing demand for the digital version of collectibles called non-fungible tokens (NFT), unique cryptographic tokens representing these collectibles, which, like cryptocurrencies, can be bought, sold and exchanged over the internet without middlemen.

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