Bitcoin is often touted as being gold 2.0. The ultimate store of value. But this statement is controversial and there is evidence to the contrary.
After all, with an asset that drops over 80% on a semi-regular basis, does it reliably hold value and be exchanged for goods? I would argue that it cannot. That is why in this article, I will be covering 5 reasons why Bitcoin is not a store of value.
So without further ado, let’s jump right in.
Bitcoin is not a store of value as it does not reliably hold its value over time. It suffers from extreme volatility while having high fees and slow transaction speeds. Consequently, there is little adoption of this medium of exchange.
What is a store of value?
A store of value is an asset that holds its value over time and can be reliably exchanged for goods, services, and other assets. Notable examples include gold and other precious metals.
To facilitate trade they must also be divisible, portable, and durable.
5 Reasons Bitcoin is not a store of value
First of all, Bitcoin is extremely volatile. It is largely based on speculation and therefore has huge price swings. Overall, it has had multiple price drops of over 70% with the most recent at 77%. In the past 6 years, the volatility has had an annualized volatility of over 75%.
This proves challenging in functioning as a medium of exchange as the price is unpredictable. The cost for Bitcoin holders for goods or services changes significantly on a day-to-day basis.
Imagine you went to buy a coffee and your purchasing power decreased over 20% from the day before. This proves troublesome for both businesses and consumers as financial planning is unreliable.
2. Transaction cost
With transaction costs at over $1 and even higher during peak times, this adds to the overall cost of transacting. When making micropayments Bitcoin is not economically viable. Any transaction under $1 is a net loss.
Ultimately, both retailers and consumers are dissuaded from supporting it and therefore adoption is also hindered.
3. Lack of adoption
The sad truth is that Bitcoin is not widely adopted. Although there are millions of holders there are just 2300 businesses in the United States that accept Bitcoin and only 13,000 worldwide.
This lack of adoption by retailers proves difficult for transacting. As a result, can Bitcoin be considered a store of value if only a handful of retailers accept it?
I would argue not. After all, the ability to be readily exchanged for something else is one of the key tenants of being a store of value.
4. Transaction speed
All in all, Bitcoin can process just 7 transactions per second (TPS), when compared to VISA’s 24,000 TPS it is lackluster. On average it takes over 20 minutes to process payments.
This does not provide the reliability of exchange that is associated with stores of value. Ultimately, consumers cannot wait this long when card payments are processed in a split second.
5. Little intrinsic value
When compared to other stores of value, Bitcoin’s utility is one-dimensional. For example, gold can be used for semi conductors and jewelry whereas Bitcoin can only be exchanged for other assets.
Moreover, nothing is backing it. It cannot be redeemed for other assets and therefore value is more difficult to maintain. Ultimately, Bitcoins’ value is based on a faith-based system. If people do not believe in it then the value collapses.
If you want to view this article in a more visual format then please check out my video below:
As you can see, there are several arguments against Bitcoins’ status as being a store of value. From the extreme volatility to the slow transaction speed.
That being said, as the asset matures and the technology develops these factors will improve. Hopefully, then it can prove to be the store of value it claims to be.
I hope you found this article useful and thanks for reading it. Want to learn the arguments for Bitcoins’ status as a store of value? Click here to read my previous article.