Bitcoin isn't a store of value
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So believers in bitcoin say that bitcoin is a store of value, and I disagree. Why isn't bitcoin a store of value? That is the question that I will be tackling here.
Bitcoin only is worth what the next fool is willing to pay for it. There is no underlying value whatsoever, no reserves, no dividends, no interest, no share buybacks, no intrinsic value, no use value (tangible features of a commodity). So the only value is exchange value and that entails counting on what the next fool is willing to pay, this cannot be seen as a solid basis for a store of value.
I already hear the whataboutisms about gold and fiat money of the bitcoin believers that are reading this, I seem to be psychic that way, I guess that having had a lot of discussions about bitcoin has made me so. So, first of all, it does not matter if gold or fiat money is or isn't a store of value. As mentioned in my earlier article, those are other questions and discussing these have nothing to do with the fact that bitcoin isn't a store of value. But I will amuse myself with some insights about these two.
First of all fiat money. This is looked at as a store of value, although there is mostly some inflation going on, so storing value comes at a cost, although that is not so surprising. Then again, on a savings-account you will get some interest that compensates for inflation. You also can put money in an old sock or under your mattress, then you aren't compensated for inflation, but most of the time it will keep enough value. Why, because we need a currency to exchange value, even bitcoin is priced in fiat currency. And importantly, fiat currency isn't an investment, although people can speculate on currency exchange values.
Then gold, this is the ancient store of value. You can have gold coins, but these aren't that useful for commercial exchange. Personally I don't care much about gold, as buying gold is more a form of speculating, but it seems that gold will hold value in economic hard times, and is used as a hedge against inflation and harsh economic times.
So then bitcoin, the digital gold as most believers will tell you. The alchemists seem to have gone digital, and got people to believe that some bit sequence is 'digital gold'. Well, a gold atom will always be gold, but a bit is just a bit, but it seems to be converted to a digitally golden bit, if it is part of a bit sequence stored in a digital administration called the bitcoin blockchain, I am laughing my socks off...
What is so different about bitcoin? Well as mentioned, the value in bitcoin is always calculated using fiat currency. Also it does not have any use value as gold has, for example in electronic equipment. It doesn't hold up as a hedge against inflation as we have seen in 2022. In economic downturn, bitcoin prices also seem to decline. And you cannot store your bitcoin anywhere but on the blockchain, or as I say, the not so little bitcoin black book of bookkeeping. You don't store bitcoin on your hardware wallet! Bitcoin only lives on the blockchain, the thing you store on a hardware wallet is the private key that enables you to change the administration of the bitcoin (sats) on the blockchain and change it so it is assigned to another wallet address.
Bitcoin is only worth the fiat money others will pay for it, people only will pay more if they believe that others will even pay more in the future, as they know bitcoin doesn't give interest or dividends, it is not invested in value adding companies, so only the believe in higher exchange values in the future will drive the price up. That is why we see so many 'expert' predictions of high bitcoin prices. 100k was already predicted to come in 2021, but it still has not happened. But believers discard all these false predictions, and keep on believing new predictions of the same and even higher exchange values for bitcoin.
These bitcoin, as they 'live' on the blockchain, require that the mining continues, as this is needed for bitcoin to work. This mining comes at great cost that is less and less covered by newly generated bitcoin each ~4 years. And then there is the chance (extremely small) that someone might guess the private key for your wallet. But wait, currently there are over 46 million bitcoin wallets, so it might be a small chance to get your wallets private key, but when looking at all the wallets, this small chance times 46 million that might get us in a range where it would be possible to find a match, still a small chance, but with computing power growing exponentially and possibly more wallets, these chances will get bigger.
And think of this, fiat currency (cash) and gold are available to us offline, that is a huge difference with bitcoin. There can be a direct exchange of cash or gold, but not of bitcoin, this will require not only being online, but also for the transaction to be processed in one of the next blocks on the blockchain. These get processed on average around the 10 minutes mark, but can take a considerable time longer, and you are not guaranteed that your transaction will be in the next block. That just isn't great for exchange, and meanwhile the exchange value can also differ from the moment of the start of the transaction.
The exchange value of bitcoin is based on believe, and that believe is easily diminished, as we have seen in the past, where exchange prices have declined rapidly. Fiat currency is supported by the whole economy where the currency is used. Bitcoin is just only a little bit supported by economic activity, think of illegal transactions and ransom(ware) payments, but for most part, people 'investing' (speculating) (HODL) only buy and sell in exchange for fiat currency. There is not much economic activity that supports bitcoin and there are a whole lot of cost for maintaining the network/miners and mining difficulty can't just drop too much, as that makes bitcoin vulnerable, so cost will keep on being high and miners will need to pay their cost using fiat money, bitcoin needs fiat.
So bitcoin isn't that usable for exchange, it has no use value as a commodity has, and it is not supported by economic activity. The exchange value is partially based on the idea of scarcity, but that is a huge misconception, as there is only programmed limited supply. Also the supply is 'limited' only in the way that bitcoin is defined as 100,000,000 sats, it is just made-up so it looks like only max. about 21 million bitcoin, but in fact there will be max. about 2,100,000,000,000,000 tokens/sats available and that does not seem so scarce. So if we construct a 'Megacoin' and define that as 1,000,000 bitcoin then the max only will be 20 'Megacoins' (and some leftover), that seems a lot more 'scarce'. So we can now clearly understand that this supposed 'scarcity' is only a fabricated construct.
Next we should see that this programmed limited supply does not imply scarcity, this is the misconception I mentioned earlier, as to be scarce, the supply should be smaller then the demand. Without enough demand for bitcoin, there is no scarcity. A lot of the value of bitcoin is based on social 'proof', as in, other people are buying bitcoin and 'experts' are saying that it will get even bigger values (because that way they hope people will buy so they can sell their bitcoin at a higher price). A lot of the time the bitcoin believers live in a social media filter bubble where they only see positive remarks about bitcoin. With enough people who start believing this, the exchange value rises and you get a self fulfilling prophecy, until people start to cash-out or until their believe in bitcoin declines.
This unbacked believe, of a few, in bitcoin isn't enough for bitcoin to claim that it is a store of value. Bitcoins exchange price is just a full blown inflated bubble, with no backing. As mentioned, there is no intrinsic value, no use value and no dividends, but there are costs, bitcoin is a negative sum game. Not backed and only hanging on to social media hype and the hope that in the future someone will pay more, that is not something I see as a store of value, and I hope that I have convinced you of the same.