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Store of Value is a term given to currencies, goods and assets that are used as a store of value and whose value does not decrease over time. Salability means the ease of selling a product in the market with the least possible loss. Three different views in Salability include scale, place and time, the most important of which is the view of time or Store of Value.
Store of value is the property of money that as time passes, there is no change in the value of the goods that we intend to use as money. Precious metals such as gold and silver are safe assets from the point of view of many people. Throughout history, gold has been known as a store of value against extreme market fluctuations.
But recently, the price of Bitcoin has increased significantly. Therefore, many analysts believe that Bitcoin is a store of value option. But there are still many people who hesitate when buying Bitcoin or gold.
If you are not able to save and save your property properly, its value will disappear with inflation. Hence, you must have a store of value asset to preserve your wealth. In the rest of this article, I will explain the concept of store of value for you.
Read more: Bitcoin price depends on what factors?!
The difference between investment and money
Investment is different from money. Investment is a return; It means that what you invest usually has a return. While money is not like that. Another difference between investment and money is that investment has the risk of loss, while money does not.
In terms of the third difference, it can be said that investment liquidity is less than money. Money itself is in cash, but investment must be cashed and converted into money. The third difference between money and investment is why not everyone invests all their money. Holding investment and money is also different based on its availability. For example, gold is an investment that quickly turns into cash.
Salability concept
Salability means the degree of ease of a product in the market with the least possible loss. Nothing can determine which goods can be used as money and which cannot. Money is a contractual concept and every person has invented his own money wherever he buys something in order to exchange it.
Salability is a feature in which the product must have the highest sales ability; Which means that it can be sold, exchanged and traded in the market with the least effort and the least loss in the shortest time.
We examine Salability from three perspectives of scale, place and time. From the point of view of scale, a salable product is a product that can be divided into smaller or larger units without any damage.
Salability from the point of view of location means that our goods can be moved easily. For example, the house cannot be used as a medium of exchange; Because it cannot be moved.
Salability in terms of scale and location are difficult properties, and various goods can be found that have both properties and can be used as money. But the third aspect that we will discuss further, Salability is a problematic feature in terms of time and there are few products that have this feature.
What is Store Of Value?
Store of Value is an asset that maintains its value over time. Precious metals such as gold are considered a safe way to preserve value due to their unlimited useful life. The value of such assets does not only decrease over time, but it is also expected to increase in the future.
Today, the definition of value reserve can be understood by understanding the words value and inflation and their impact on income. The value of money is the purchasing power in a period of time, while inflation means the gradual decrease in the purchasing power of money due to the increase in its supply. In fact, there are no restrictions on printing banknotes or minting coins by a country. And according to the laws of economics, increasing the supply of an asset will decrease its value.
This definition brings us to the concept of Store Of Value. To store value, an asset must have a growth rate equal to or greater than the rate of inflation. In addition, the asset in question must be non-perishable and transferable over time.
In other words, value reserves are stable, low-risk, safe and permanent assets. The important point is that most value stocks experience less price reduction or even increase in price during recessions and when most assets are facing decline. Therefore, many investors and activists in the field of digital currency portfolio management even allocate a part of their capital portfolio to such assets.
Features of store of value assets
Goods or assets that are introduced as a store of value have the following characteristics:
scarcity
Assets must be rare while maintaining proper value while being intrinsically valuable. For example, no matter how many sources of gold, it is ultimately limited. This restriction has made gold rare. Therefore, gold maintains its value in the long term and is considered a suitable option for storing value.
Durability
One of the most important features of storing value is durability. Many goods have intrinsic value, but it is not possible to store them for a long time. For example, food items have value and if they become scarce, their value increases, but they cannot be considered as a store of value. Because they cannot be preserved for a long time and they become rotten with the passage of time. But precious metals such as gold have an unlimited useful life and are considered a store of value.
Expensive and difficult production
Most people consider paper currencies such as dollars to be a store of value. While its indiscriminate printing can significantly reduce its value. Although gold can be produced in a laboratory, no factory has been able to fill the market with gold. Because making gold in a laboratory is much more expensive and difficult than extracting it.
Can fiat currencies be considered a store of value?
Many people have come across the question of whether currency is considered a store of value. In response, I will tell you that inflation is the biggest money problem. Considering that the value of common monetary units and fiat currencies decreases over time, the impact of inflation in the long term cannot be ignored. Hence, the depreciation of money over time contradicts the attribute of store of value and purchasing power in store of value.
Despite this, some economists still believe that reserve money can be a powerful value. These people believe that the process of currency depreciation is slow over time. Features such as impressive liquidity, wide acceptance, divisibility and ease of transfer are among the features that the supporters of fiat currencies express to save their value. This is while the fiat currency such as the US dollar, having these attributes, lacks features such as scarcity and maintaining purchasing power.
Is gold a store of value?
For many centuries, gold has been introduced as a store of value. The price of gold is almost stable and does not experience destabilizing and severe fluctuations, and its value has always been increasing. For years, investors and big institutions have been trusting gold. Also, the price of gold is almost independent and has no significant relationship with the fluctuations of the financial markets.
Despite the current state of the financial markets, gold has retained much of its value and has seen a smaller decline compared to other assets. Gold is a rare asset with limited supply and a difficult extraction process. At the same time, it is also possible to buy and sell a small amount of it. These features have made this asset one of the most important reserves of value among the public.
Advantages of digital currencies and Bitcoin as Store Of Value
Digital currencies are one of the best long-term hedges against inflation. There are several reasons why cryptocurrencies should become a store of value, including:
Limited supply of bitcoins
Bitcoin was the first cryptocurrency and introduced a new way for people to pay. The reason why Bitcoin has become one of the reliable stores of value is the limitation of its total supply to 21 million units, which is institutionalized in its architecture. Due to the hard coding rule, it is guaranteed that the number of bitcoins will never exceed this amount. Due to the limited supply, the demand for bitcoins increases and during that the price of bitcoins also increases. Bitcoin’s proven and well-known rarity is one of the most important reasons for its superiority compared to other stores of value. In addition to the difficulty of mining Bitcoin, Bitcoin halving is another reason for the increase in price and the limitation of its supply.
Universal Jurisdiction
Fiat currencies are limited by geographical boundaries, but crypto has no borders. Tokens and coins are based on global decentralized networks called blockchain. Therefore, whether you intend to use it in a store near home, or transfer it to someone on the other side of the world, it is possible to do it in just a few minutes or seconds. This flexibility reinforces the nature of digital currencies as a store of value.
The difficulty of generating bitcoins
Mining and extracting Bitcoin, like gold, requires spending a lot of energy and time. In fact, Bitcoin mining is a kind of lottery and it is a digital method on a computer that is difficult.
Easy divisibility
The dollar is divisible into 100 cents, but Bitcoin is divisible into 100 million satoshis. In a similar case, a digital currency such as Tether can be divided into one billion gigabytes, and each gigabyte (Gwei) is itself divided into one billion wei (wei). Hence, for small payments, these currencies are superior.
Bitcoin portability
A store of value must be portable so that people can use it to provide services to each other and purchase goods. Although some people see gold as a better store of value in this regard, Bitcoin has even outperformed gold in this area. Bitcoin owners are able to keep their multi-trillion dollar wealth on a hardware device or desktop wallet, etc. While gold in large amount requires a lot of money and effort to maintain. Bitcoin can be sent to the farthest places at the lowest cost and in a short time.
Bitcoin portability
A store of value must be portable so that people can use it to provide services to each other and purchase goods. Although some people see gold as a better store of value in this regard, Bitcoin has even outperformed gold in this area. Bitcoin owners are able to keep their multi-trillion dollar wealth on a hardware device or desktop wallet, etc. While gold in large amount requires a lot of money and effort to maintain. Bitcoin can be sent to the farthest places at the lowest cost and in a short time.
Digital currencies have recently become guests of the global financial markets and have gradually found a very special place among economists and investors. As the first cryptocurrency and the mother of cryptocurrencies, Bitcoin has the largest amount of investment and Bitcoin mining is a great way to earn money.
But in response to the question, can this currency be considered as a store of value of Bitcoin? It should be said that while Bitcoin has performed very well as a digital asset, some people still believe that it cannot be considered as a store of value due to its relatively short lifespan.
Another point against Bitcoin as a Store of Value is that Bitcoin has high volatility. By examining the historical data of Bitcoin, it can be seen that at some times this cryptocurrency had a high price growth; But in other cases, it has also been accompanied by a price drop. This would call into question the basic principle of Bitcoin’s store of value.
Finally, experts claim that Bitcoin, as an old technology, is actually the beginning of the era of digital currencies, but it has many flaws. New currencies cover many of the shortcomings of the Bitcoin digital currency, and with the passage of time, this currency will lose its position as the king of digital currencies.
Experts and analysts have different answers to this question; Some believe that Bitcoin cannot be considered as a store of value, while many others believe that due to the characteristics of Bitcoin, this currency can be considered as a store of value.
Due to its features such as limited supply or scarcity, flexibility, portability, divisibility and decentralization, Bitcoin can be considered a suitable option for value reserves.
Real estate is one of the most common stores of value due to its use and tangibility, which usually increases in value over time. But on the other hand, they cannot be used as a medium of exchange due to lack of mobility.
