How Bitcoin is becoming a Store of Value

Bitcoin is Fast Becoming A Safe haven

Bitcoin has become the World’s darling.

So much so that many wonder if Bitcoin is the gold standard of the twenty-first century.

There are those who give their reasons that Bitcoin is not a store of value.

But for the greater part, Bitcoin is behaving very much like a store of value.

Satoshi’s Whitepaper

Most people who argue that Bitcoin cannot be a store of value point out to the fact that Satoshi Nakamoto’s original whitepaper described a method for peer-to-peer payments.

While that may be so, the functionality of the cryptocurrency has changed in the past decade of its existence.

Many people are looking at the utility-use nature of Bitcoins in the right perspective.

Bitcoins usually have been used for payments.

Then the HODLers came into the picture.

Everything changed drastically.

No longer were we looking at cryptocurrency tokens from the perspective of money.

But also from the perspective of utility: meaning that Bitcoin’s can have intrinsic long term value.

The Economic Theories of Money and Bitcoin

In order to understand how Bitcoin is a store of value and it isn’t one at the same time, one would have to consider the economic theories of money and their impact on the 21st century.

The Quantity Theory of Money

In this theory as propounded by Milton Friedman, the money supply of money in any society is generally directly proportional to the prices of goods and services within that economy.

This gave birth to the inflationary tendencies that we currently have in modern-day fiat money systems.

Bitcoin on one hand while being used as a form of exchange also has a fixed supply (21 million Bitcoins).

So, we can see that Bitcoins beat the quantity theory by a long mile.

As such, Bitcoin and the cryptocurrencies which have a fixed number of tokens to be ever created will experience some sort of scarcity at some point.

This will definitely drive up demand.

And we know that scarce assets physical or digital always go up in value due to demand.

This is a natural law!

This, of course, builds a case for Bitcoin as a store of value because it is not subject to inflationary tendencies.

No matter how the prices of goods and services move, Bitcoin will still have an intrinsic value based on the fixed number of Bitcoins to be available ever.

Keynes Income Theory of Money Adds its Weight

Maynard Keynes income-expenditure theory of money also sheds more light on the use of Bitcoin as money.

Seeing Money in a New Light

Keynes and his ardent fans and followers were opposed to the quantity theory of money.

They were opposed to this theory because they were more concerned with two things:

  1. Transactional
  2. Precautionary motives for the holding of money.

Keynes also pointed out something quite interesting: the velocity of money is also bound to change as well.

It is this change in velocity that determines how its value increases or decreased over a given period of time.

Bitcoin Store of Value
The Light of the Bitcoin

Based on general economic activity (investment demand schedule, preference schedule, and supply of money) the price level of money is subject to change.

So, there isn’t a clear cut approach to the determination of the relationship between money supply and price levels of money.

In his theory, the store of value of money is determined by decreases in the velocity of money.

If money flows, money as store-of-value decreases.

If money doesn’t flow, the store of value increases.

Looking at Bitcoin and Money in a New Light

In order to fully appreciate the weight of these two approaches to money, we must look at money in a new light.

Bitcoin’s fixed Money Supply Increases its Store-of-Value

Because there are only a fixed amount of Bitcoins to ever exist, Bitcoin works quite well as an asset class regardless of the original intentions of its creator.

The Lack of a Central Coordinating Authority Lifts the Lid on Market Entry and Exit

The use of the public ledger system already puts Bitcoin and the cryptocurrencies in a class of their own.

Without having a central authority to coordinate their activities, the cryptocurrencies don’t have any barriers to market entry or exit.

This seemingly frightful scenario is what makes the Central banks of the world scared: they are about to lose their relevance in the 21st century.

This, of course, creates the ultimate capitalist scenario: everything works because the market exists.

Bitcoin Now Acts More Like an Asset and Less as a Means of Exchange

The net effect of such a scenario which is already playing out is that people will start coming to the cryptocurrency market place with different kinds of intentions.

Many will come to the marketplace with hopes to score it big in the shortest space of time (baby speculators).

Others enter “mafia-style”.

And then the real crypto buffs take their place: the HODLers.

It is this group of individuals who exist globally that gives credence to the assertion that Bitcoin is now a store of value.

Bitcoin as Money Will Still Exist

Many people will still continue to use Bitcoins as a form of money.

This will go on until time stops running.

However, the majority will also see the dual purpose use that Bitcoin holds.

Just like Fiat money, but without the frills and ills.

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