Store of Value

The price of Bitcoin goes up and down. Dramatically. Sometimes it drops 50%, 70%, 80% from its peak. Critics point to this and say: how can something so volatile be a store of value?

It’s a fair question. But it misses something important.

A store of value doesn’t mean the price never moves. It means the asset holds purchasing power over long periods of time relative to alternatives.

Gold’s price fluctuates too. In 1980 it hit $850. It didn’t reach that price again until 2007 — 27 years later. Anyone who bought at the 1980 peak had to wait nearly three decades to break even. Yet nobody argues gold isn’t a store of value.

The comparison that matters isn’t Bitcoin’s price today versus yesterday. It’s Bitcoin’s purchasing power over years versus the purchasing power of your alternative: cash.

Cash loses purchasing power every year — reliably, by design, regardless of market conditions. Bitcoin’s purchasing power has increased dramatically over any four-year period in its history, despite extreme volatility within those periods.

For someone holding savings over a ten-year horizon, the question isn’t “will the price drop next month?” It’s “in ten years, will this have held value better than leaving money in a savings account?”

Based on every ten-year window in Bitcoin’s history so far, the answer has been yes — by an enormous margin.

Volatility is the price of admission. Debasement is the price of the alternative.

Tomorrow: Bitcoin vs altcoins — one honest paragraph.

— The Daily Bit