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What is Store of Value? Is Bitcoin a store of value?

ذخیره ارزش (Store of Value) چیست؟ آیا بیت کوین ذخیره ارزش محسوب می‌شود؟

Many experts hoped that with the beginning of 2022 and after the relative stability in the global inflammatory conditions after the Corona epidemic, the situation will slowly return to the previous routine; But not only this situation has not improved much; Rather, with the start of the military conflict between Russia and Ukraine, the world’s economic conditions have deteriorated. Having said that, it is not so surprising that these days many people obsessively follow the economic news and in the meantime, they come across terms and topics that they paid less attention to before, one of these terms store of value Is.

Read more: What are inflationary assets and anti-inflationary assets?

After the recent economic upheavals, many people are worried that their lives may face severe economic damage due to global conditions. For this reason, they seek to convert their holdings into assets that are safe from recessions and sharp declines and devaluations. Now, these anti-inflation assets and protection against recession, which are considered in the economy as store of value They are learned, what are they and what are their characteristics? Can digital assets, especially Bitcoin, which many see as a store of value in times of crisis, protect us against recession and inflation? If you want to know more about these types of assets and get answers to these questions, stay with us until the end of this article.

What is Store of Value?

In general, a store of value is an asset or a commodity that maintains its value over time and does not experience a sharp drop in price. In fact, reserves of value are stable, safe, low-risk and long-lasting assets. This low risk and stability has made the reserves of value become an important and valuable issue at a time when the economic conditions are accompanied by distrust and extreme fluctuations.

The important point is that most value stocks experience less price reduction or even increase in price during recessions when most assets face a decline; Therefore, the reason why many famous investors always allocate a part of their capital portfolio to this type of assets is not so surprising.

What are the characteristics of store of value?

Store-of-value features

In general, there is much disagreement about which asset is a store of value; But it should be noted that not every asset and commodity can be labeled as a reserve value. Assets designated as stores of value often have characteristics that distinguish them from other items. Some of them are:

  • Stability In swings: One of the important characteristics of the store of value is the issue of stability and stability. Value stocks often do not experience extreme price swings, and instead tend to increase in price at a slower pace. Of course, we should not forget that these assets may face short-term fluctuations and fall in price during major economic crises; But this reduction is less compared to other assets, and in general, you can see the stability in their price cycle.
  • Independence from other markets: Another important feature of value reserves is their independence and separation from the traditional financial market such as the stock market. These assets usually have little correlation with other financial markets such as S&P500 they don’t have and often as a hedge against risk safe haven Investors are used in times of turmoil. It should be noted that these assets do not follow traditional markets; For this reason, they do not undergo price changes during market correction.
  • Maintaining purchasing power: Another characteristic of value reserves is the preservation of purchasing power. This means that the value of this category of assets is almost stable and even increasing. For example, if today one unit of a particular store of value can be exchanged for five loaves of bread, this ratio of purchasing power must always remain constant or increase over time. In other words, in the next 10 years, one unit of the same value reserve should be At least Five loaves of bread (at the daily rate) can be exchanged.
  • Durability and continuity: As we mentioned, one of the main aspects of reserves of value is durability and maintaining their value over a long period of time. Permanence means that Inherent features They do not change over time and can last for years and even centuries. Assets and goods, no matter how precious and valuable; but in Test When they cannot maintain their inherent characteristics, they are never considered a store of value.
  • General Admission: Another feature of value reserves is their wide and general acceptance among people. The fact that any commodity or asset can prove its importance and value to the general public and be accepted by a large part of the society can be considered as a store of value.
  • Divisibility: Divisibility is also one of the features that can cause the selection of goods or assets as a store of value. The meaning of being divisible is that it can be bought and sold in smaller or smaller dimensions and units and there is no limit in this field.
  • Easy to move: One of the debatable topics of experts about reserves of value is the transfer issue. Some believe that the store of value should be easily transferable; But some people do not consider this attribute as a property of value reserves, and they cite land and property as examples of value reserves that are not transferable.

In addition to the mentioned characteristics, characteristics such as rarity, difficulty in production or extraction, considerable liquidity and ease of buying and selling are also important characteristics of value reserves. After reviewing the characteristics of stores of value, this question arises: which of the assets that are available to us today (such as gold and fiat currencies and bitcoin) are considered stores of value?

Are fiat currencies a store of value?

Is currency a store of value? This is a question that has different answers. The biggest problem with money is inflation. Since the value of common currencies or fiat currencies depreciates over time, avoiding inflation in the long run is very difficult and almost impossible. Therefore, this devaluation in currency directly with the important attribute Maintaining value and purchasing power In reserves, the value is contradictory.

However, some economists still believe that money is actually a powerful store of value. They claim that the value of money decreases over time; But the process is very slow. Features such as widespread acceptance, significant liquidity, ease of transfer and divisibility are the attributes that fiat currency advocates cite for its value. This is despite the fact that fiat currency such as the US dollar, although it has such characteristics, lacks important features such as Maintain purchasing power And scarcity Is.

Is gold a store of value?

For centuries gold It is considered as a store of value. The price of gold is almost constant; That is, it does not experience severe and destabilizing fluctuations, and its value has always increased, and it has been trusted by institutions and big investors for years. Moreover, the price of gold is almost independent and has no significant relationship with the fluctuations of the financial markets.

Despite the current conditions of the financial markets, gold has maintained a significant amount of its value and has experienced a lower price decrease compared to other assets. Gold is a rare asset with a limited supply and it has a difficult extraction process, but at the same time it is possible to buy and sell a small amount of it. These characteristics have made this asset to be called one of the most important reserves of value among people and investors.

Is Bitcoin a store of value?

Bitcoin as a store of value

From the point of view of many in the world of digital currencies, Bitcoin is considered the most prominent example of the digital version of the store of value; For this reason, it is often referred to as “digital gold”. While many experts believe that Bitcoin has the essential characteristics of a store of value, there are also some critics who argue that Bitcoin is not an efficient store of value, at least not yet, and cannot be trusted.

In order to better examine this issue, we will compare some of the characteristics of the store of value with the inherent characteristics of Bitcoin to see how true the claim that Bitcoin is a store of value can be.

  • rareTheto be: One of the main reasons Bitcoin is considered a store of value is its limited supply. The supply of Bitcoin is limited to 21 million units and its supply trend is decreasing over time. This digital currency is designed in such a way that in addition to increasing the difficulty of mining, its supply will also be limited during an event called halving. For this reason, Bitcoin’s anti-inflation model is somewhat similar to gold.
Inflation, Bitcoin Supply and Store of Value

Read more: What is Bitcoin? All about Bitcoin + Video

  • Durability and ease of transfer: Bitcoin never has an expiration date and it can be said that its shelf life is unlimited and at the same time, its storage costs are close to zero. The only tool a person needs to keep and own Bitcoin is a digital wallet; A wallet that can hold and manage bitcoins for a very long time without any restrictions. In addition, Bitcoins can be easily and cheaply moved around the world. This durability and ease of transfer allows Bitcoin to be an asset that investors can easily hold and move over a long period of time.
  • High volatility: One of the biggest problems of Bitcoin as a store of value is its price fluctuations. In recent months, we witnessed a significant fall in the value of this digital asset compared to its peak price; An important issue for an asset that is supposed to bring the stability of the investors’ asset value as a reserve of value. We must not forget that gold lost only 2-3% of its value in the same period. As long as Bitcoin faces such large fluctuations, it will have a hard time presenting itself as a store of value; Because it cannot provide investors with the stability and constant growth that we expect from other stores of value.
  • Correlation with markets: As we mentioned earlier, having independence And No significant relationship Between property and traditional markets such as stocks, it is an influential feature for storing value. According to the evidence, until mid-2017, Bitcoin had little correlation with traditional markets such as the S&P500; But since the beginning of 2018 and especially since the beginning of 2020, not only a relatively strong relationship has been established between them; Rather, this relationship has progressed towards perfect correlation. If we look at the chart below (correlation cycle between S&P500 and Bitcoin), we can see that this amount has reached about 0.607 in 2022. What is the reason for this correlation? It seems that with the growth of Bitcoin as one of the main streams in the financial markets and the attraction of institutional financial institutions to invest in this digital currency, its correlation with global markets has increased.
Bitcoin Correlation with S&P500

Institutional acceptance of Bitcoin leads to wide acceptance and increase in the applications of this digital currency; But at the same time, this issue causes a relatively strong connection and dependence to form between this property and traditional markets; Conditions that can affect Bitcoin’s position as a store of value.

All in all, Bitcoin has several characteristics that make it an excellent store of value. However, its high volatility and high price volatility and its correlation with some financial markets suggest that Bitcoin has a long way to go before becoming a solid store of value.

Conclusion

For ordinary people who have limited savings, maintaining the value of their savings is the most important issue; For this reason, many are looking to find a way to preserve the value of their assets by converting them into commodities or inflation-defying assets.

In the meantime, fans of digital currencies advise people to go to Bitcoin and invest part of their savings in it in order to avoid recession and inflation. Because they believe that this asset is a true and permanent store of value.

In contrast, traditional and more cautious investors encourage people to buy gold or more valuable fiat currencies, believing that gold or currencies such as the US dollar can protect their lives from turbulent economic conditions.

What is your opinion on this matter? Which anti-inflation asset or store of value do you think can keep our savings safe?

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