Is Bitcoin replacing gold and oil to become the “store of value” of the digital age?

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Store of value is an asset class that does not lose its value over time like fiat, which is relatively volatile. Fiat money is convenient as a daily medium of exchange and as a means of preserving short-term liquidity, but it does not hold its value well over time.

Fiat quickly loses value during normal episodes of inflation. Episodes of hyperinflation in monetary systems around the world, for example in Zimbabwe, Venezuela, the former Yugoslavia, etc. are the worst case scenarios for the value of fiat to fall.

To counter the effect of inflation, people invest their money in assets like stocks, bonds, real estate, etc. which should increase in value or stay the same over time.

Despite their superiority over cash, these investment vehicles go through boom and bust cycles. To make matters worse, their price movements are interdependent – ​​meaning that market conditions affecting one would almost certainly affect the others.

Therefore, an asset that is immune to market fluctuations is essential. Gold has been the world’s primary store of value for thousands of years, as investors are confident that their wealth will retain its value over time. Gold has retained its value throughout history as protection against uncertain times. Durability, scarcity, mobility and convertibility, as well as emotional appeal, are some of the reasons that have helped to survive multiple currency systems and stand the test of time.

Moreover, the supply of gold is limited, constant and predictable. As a result, gold’s correlation with other asset classes, such as stocks and real estate, is very low.

(Credit: Mohsin Shaikh)

Not just individual investors, but even governments recognize gold’s store of value. Many countries throughout modern history had adopted the gold standard monetary system. The term “gold standard” refers to the monetary system in which the value of paper money is guaranteed by gold held by the government.

Although this method was successful in combating inflation and deflation, it limited the ability of governments to freely generate cash. In 1973, the US government abandoned the gold standard and eventually the US dollar became the world’s reserve currency, with many world currencies pegged to it rather than gold.

Oil has also become a store of value. Its rarity makes it an excellent store of value. Despite the collapse of world markets caused by the ongoing war between Russia and Ukraine, oil prices have risen, suggesting that countries are exchanging their fiat for oil to ensure that its value can be maintained over time.

Another asset has emerged as a store of value in the digital age. Ukrainian and Russian civilians exchanged their national fiat for Bitcoin and other cryptocurrencies to protect against the rapid inflation caused by the war. It looks like Bitcoin could overtake gold and oil as the preeminent store of value.

According to a recent report from Goldman Sachs, there is a real possibility that Bitcoin will take gold’s market share by 2022 as digital assets become more widely adopted. Citing Bitcoin’s $700 billion market capitalization, compared to the roughly $2.6 trillion in gold held as an investment, the Goldman Sachs report claims the cryptocurrency currently holds a 20% share. of the “store of value” market.

In its list of predictions, the global investment giant considers Bitcoin as an asset class “most likely” to grow larger over time.

In fact, despite the panache in the stock markets due to the ongoing conflict between Russia and Europe, Bitcoin showed a 25% rally last month.

But what is it about Bitcoin that makes it so appealing?

Bitcoin, although it has no practical application like gold or oil, has inherently become a store of value due to its durability and scarcity. Bitcoin’s total supply is capped at 21 million, and it will never exceed that figure.

Moreover, Bitcoin is a decentralized digital asset that operates independently from central banks or governments, due to the existence of a global network of nodes and miners. This provides some measure of privacy to Bitcoin users while simultaneously increasing the security of the currency.

A desirable store of value should also serve as a medium of exchange, allowing it to be converted as needed. Bitcoin is tradable due to its fungibility, portability, divisibility, and widespread adoption.

Here are the arguments that prove Bitcoin is a better store of value than gold or oil.

Scarcity

Gold and oil are very rare. Their extraction is expensive and labor intensive. As a result, increasing their supply is not easy.

However, Bitcoin is rarer than gold and oil. There will never be more than 21,000,000 Bitcoins, and none will be mined after the year 2140.

fungibility

Fungibility is a term that refers to the property of being interchangeable and is a trait of a good store of value. Gold and petroleum are generally fungible but may contain impurities which reduce their fungibility. It is not easy to test their purity by an individual without sophisticated tools.

In contrast, Bitcoin is always fungible. A single bitcoin is identical to another and, more importantly, cannot be counterfeited.

Divisibility

A store of value should be easily divided into smaller parts to facilitate more accurate transfer of value. Gold and oil considerably lack this property.

Bitcoin, on the other hand, is literally infinitely divisible.

Storage room

When comparing Bitcoin to other stores of value like gold and oil, storage is a big factor. Storing oil and gold requires a physical location, tight security, etc.

By comparison, Bitcoin has no such requirements. Bitcoin, whatever its value, can be saved on a USB drive or even online and accessed from anywhere in the world with an internet connection.

Portability

Portability is also an important factor when it comes to a store of value. Transporting gold and oil is a time and resource consuming process while Bitcoin transfers are fast and affordable.

It looks like Bitcoin is becoming the store of value for the new world, but it’s worth mentioning that there are a lot of regulatory issues surrounding the acceptance of Bitcoin and only time will tell how that will pan out.

Also Read: Ukraine Raises Over $46 Million Via Crypto Donations

Also Read: USDT Tether, Bitcoin, Ethereum See Increased Trading Volume Amid Ukraine Dispute

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