To the average investor, 2018 was not a good year for proving Bitcoin’s worth as an investment tool. As the market roiled, investors watched their stake in Bitcoin sink.
In the mind of most, anything with a market capable of fluctuating 80 percent or more over the course of a year held nothing more than risk.
Yet for cryptocurrency diehards, those who long ago abandoned any previously held trust in fiat money, Bitcoin’s worth as a store of value was undisturbed throughout 2018. These people, well informed regarding the true stability of the U.S. Dollar (USD), see Bitcoin in its finest state as a decentralized, secure, private, international currency. What they now concern themselves with are those who would argue that the true worth of Bitcoin lies in its utility.
To Bitcoin maximalists, this is the true issue at hand. With the proliferation of new initial coin offerings (ICOs) touting new tokens with new use cases over the past year, the entire industry has been distracted by the technology value of blockchain in general.
There is no doubt that there is immense value in the future of blockchain technology. Many would argue it is the future of internet communication and commerce — but is it a more important feature than Bitcoin’s role as a store of value?
What is a Store of Value?
To answer this question, it is important to understand the store of value premise. According to Investopedia, a store of value (SoV) is an asset that maintains its value without depreciating. In other words, a SoV preserves purchasing power over time. The holder of the store of value carries the expectation that it will be worth approximately the same amount and be equally useful in the future as it was when it was originally purchased.
Trust is the most important feature a SoV must possess. The asset in question must evoke a sense of confidence in its ability to remain consistent in price. This trust must be felt by the vast majority of people using the asset.
Of course, the most well-known SoV is gold. For centuries, gold was the currency of choice. The wealthiest nation was the one that held the most gold. In the 16th century, explorers set out from nearly every major European country and traveled to the New World, an entirely new continent, not in search of land, but of gold.
As governments began printing paper money, it was also the standard by which all money was valued. In the United States, for example, the gold standard was set at $20.67 for nearly half a century. This meant that an ounce of gold was equivalent to $20.67 and could be confidently redeemed for that amount.
Yet, the gold standard was fleeting. When the Great Depression hit the United States, gold was stockpiled, eventually leading to the United States becoming the largest holder of gold on earth. Its citizens, however, were purchasing goods from foreign countries at ever increasing rates and gold stores could not keep up.
While the U.S. dollar remained one of the top trusted currencies in the world, its value was maintained by the Fed’s attempts to raise interest rates in order to keep pace with the worth it needed from the dollar.
Thus began a time when the store of value of the dollar was based upon nothing more than itself. The human race and its historical fascination with gold transferred to some extent to the USD. But the USD continues to inflate. It is swayed and stored by other governments while remaining hopelessly tied to the United States. This effectively moves the store of value proposition onto itself, creating an infinite loop of non-value.
Utility Tokens Not a Great SoV?
Stability is a pillar of the store of value concept. Utility tokens, by nature, are incapable of maintaining stability. They are designed to foster innovation and technological creativity, but constantly need to be adjusted and improved to meet user needs.
They are similar in nature to the iPhone. When the iPhone launched in 2007, spending $400 or more on a mobile phone was nearly unheard of. Today, iPhone users spend between $450 and $1100 every time they upgrade. Over 50 percent of iPhone users replace their phone every two years or less, and most phones are worth less than a quarter of their original value when the upgrade takes place.
We are a society committed to technological innovation. This also means that we recognize the loss of value in dated technology.
Despite the fact that blockchain technology and its corresponding utility tokens are certain to hold an integral place in the future of information sharing, this is simply not where Bitcoin’s true importance lies.Bitcoin was developed to meet the dire need for financial stability and security, and the technology is simply a vehicle to make that happen. Click To Tweet
Too many people make a category error when it comes to Bitcoin.
Bitcoin is not a tech play like Instagram where you have to constantly innovate to win.
Bitcoin is a monetary play like gold where stability and security are what make it valuable.
— Jimmy Song (송재준) (@jimmysong) January 5, 2019
Bitcoin Lacking as a Store of Value?
Traditionally, money has existed for three purposes. It has been used as a medium of exchange, a standardized unit, and a SoV. Because these three characteristics have historically been linked, it is difficult for more investors accustomed to traditional fiat money to see Bitcoin’s potential as a SoV.
They see, instead, market volatility. Most haven’t read Satoshi’s paper, and they do not understand the fascinating simplicity behind the Bitcoin concept. The chaos and turmoil similarly exhibited by gold, the USD, and a multitude of other international fiat currencies are forgotten.
Yet, for Bitcoin’s most loyal followers, its SoV use is a utility in itself. Genuine SoV potential greatly outweighs price fluctuation, since a change in price is temporary, but a SoV potential could be multi-generational.
Store of value properties is what gives crypto networks value, utility is overrated for the purposes of investment appreciation – utility is a red herring for investors.
In the case of Bitcoin, its real utility is really just a bucket, it's a bucket to store value.
— Willy Woo (@woonomic) January 7, 2019
Do you think Bitcoin is mostly about the technology? Let us know your thoughts in the comments below!
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