With the argument over Bitcoin status as a store of value continuously raging, especially on jolting days like today, when it declined alongside wider financial markets, this time, sliding below $50,000 for the first time since February, the volatility raises many questions about it being, over all, a digital equivalent for gold.
To Bitcoin naysayers, its volatility is already a glaring problem. The sudden drop of Bitcoin invited critics to voice doubts. Bloomberg's Joe Weisenthal used the term "three tech stocks in a trenchcoat" for Bitcoin, saying that it was so volatile, it could not be called a store of value.
But step back and think about the bigger picture.
Confusing store-of-value assets with flight-to-quality assets, the former is about long-term expectations, while the latter is about rapid market reactions, is something we should not do. On panic days, assets such as U.S. Treasury bonds are considered safe havens. Bitcoin has not earned that status yet. It is still volatile and speculative, but it does have the potential to be so due to its scarcity, portability, and lack of reliance on government policy.
Those who view Bitcoin as a store of value are not seeking daily protection against the swings of the market. They want this to be a hedge against the gradual decline in the purchasing power of the dollar. The supply, at 21 million, is capped and resilient to any kind of measure that would be inflationary. For these investors, it's not about the price of Bitcoin going up, rather, the dollar goes down.
Something can be both a risk asset and a store of value.
Those who use Bitcoin as the latter are quite aware of the digital currency's volatility. They are attracted to its resistance to confiscation, making it an asset safe from anything happening to bank accounts. This protectiveness against seizures is an added layer that adds further value to Bitcoin.
Co-founder of Tezos, Arthur Breitman, commented that the very confiscation resistance of Bitcoin makes it a reliable store of value in cases when bank accounts are being seized. In such a case, Bitcoin stands out. That contextual point is important to understand its role.
In times past, while facing liquidity crises, Bitcoin sells off but ramps up in sovereign-debt or fiat-confidence crises. Monday's sell-off fits the former scenario.
Comparing Bitcoin to gold, which has been used for thousands of years as a store of value, doesn't really make sense; Bitcoin is just an infant.
Essentially, Bitcoin store-of-value is a venture bet. It is still in its developing stage, and its role as a store of value should get clearer with time.