On days like these, it’s easy to mock bitcoin {{BTC}}, especially with its claims that the original cryptocurrency is a store of value, a digital equivalent of gold.
BTC fell along with broader financial markets on Monday, briefly dropping below $50,000 to its lowest level since February before paring some of its losses. By early afternoon New York time, the asset was down 9% on a 24-hour basis to $53,387.67.
For skeptics, Bitcoin’s volatility was an invitation to repeat an old Billy Crystal comedy: “Where’s the Messiah now?”
“The Bitcoin ‘store of value’ thesis is currently blowing up,” Bloomberg columnist Joe Weisenthal boasted on X (formerly Twitter). “Bitcoin doesn’t look like The New Gold. It looks like 3 tech stocks in a trench coat.”
9) The thesis that Bitcoin is a “store of value” is currently debunked.
Bitcoin doesn’t look like The New Gold. It looks like 3 tech stocks in trench coats. pic.twitter.com/cY77hvXagL
— Joe Weisenthal (@TheStalwart) August 5, 2024
But there is also a more nuanced way of looking at this question, moving away from the metaphorical perspective.
“We shouldn’t confuse stores of value with flight-to-quality assets,” said my colleague Andy Baehr, head of product at CoinDesk Indices. “The former is a feature of long-term expectations, and the latter is a feature of flows and fast markets.”
The “long term” part is important.
On a day like Monday, when the Nikkei fell 12% and an atmosphere that invited comparisons to “Black Monday” in 1987, Baehr said U.S. Treasuries “tend to be this flight-to-quality asset that everybody is rapidly approaching.” Treasury yields, which move inversely to prices, are at their lowest levels since January.
It is clear that Bitcoin does not enjoy its status as a commodity.
“It’s still certainly a volatile asset, in many cases speculative, in many cases leveraged, in many cases traded asset,” Baehr said. “But its characteristics, over time, its scarcity, its portability and its lack of any government or corporate policy, are promising enough to make it a really interesting asset to consider as a store of value.”
Investors who view Bitcoin this way see it not as a safe haven from daily market volatility, but as an insurance policy against the continued erosion of the dollar’s purchasing power. Bitcoin’s supply is predictable and fixed at 21 million, immune to the whims of policymakers.
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“Long-term holders, especially those who are concerned about the national debt, central bank policy and all of these issues, feel like it’s not so much bitcoin that’s going up. [that matters] But the denominator is losing value,” Baehr said.
While it may seem counterintuitive, it’s possible for something to be both a risk asset and a store of value at the same time, he added. “People who use Bitcoin as a store of value are not unaware of its volatility.”
Arthur Breitman, co-founder of the Tezos blockchain protocol and cryptocurrency expert, stated that bitcoin’s resistance to confiscation also makes it a “store of value” in another sense.
“Bitcoin is a good store of value if … bank accounts are being seized,” he wrote in his response to Weisenthal about X. “This is contextual.”
Bitcoin is a good store of value in case bank accounts are seized. It’s contextual.
— Arthur B. 🌮 (@ArthurB) August 5, 2024
In a separate response to Weisenthal, Dan McArdle, co-founder of crypto data service Messari, tweeted an old post in which he described how he expected Bitcoin to perform in different types of disasters.
McArdle wrote in 2018 that it should “sell in liquidity crisis scenarios and increase in sovereign debt/fiat confidence crises.” Monday was an example of the former.
The price of gold, which has been tested as a store of value for longer, fell about 1% on Monday afternoon.
“It’s not fair to compare Bitcoin to something that is still in its infancy and has been used as a store of value for thousands of years,” Alex Thorn, head of corporate-wide research at crypto investment bank Galaxy Digital, said, referring to comparisons to gold.
Buying Bitcoin is “a risk-like bet on its future as a store of value,” he said. “Bitcoin is still being adopted. So it has both volatility and growth potential.”