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The difference between Bitcoin and traditional commodities is that it provides holders with both the benefits digital currencies offer and the advantages of conventional assets.
Over the years, people have often converted traditional money to gold and other types of commodities to deal with inflation. In recent years, many have turned to digital assets as stores of value because they feel more confident about investing in innovative commodities.
Stores of value are defined as asset classes that maintain their value in the long run but are more volatile than fiat money. Traditional currencies are the best solution for daily transactions and work as mediums of preserving value in the short term, but they fail to retain value in the long run. Fiat money tends to lose value fast in periods of high inflation, which can lead to monetary systems breaking down.
More investors have become interested in countering the effects of inflation and have identified assets like gold, real estate, bonds, stocks, and blockchain-based commodities as the ideal mediums for the purpose. It’s wise to choose an asset that could appreciate in value over time. Stores of value are superior to traditional currencies and go through boom-and-bust phases. It’s essential to note that market conditions influence all of them; hence, their values are interrelated.
Seasoned investors know that they must add assets immune to market fluctuations to protect their wealth. Gold has been popular in the market for maintaining its high value regardless of the world’s economic and political issues. Gold has maintained its worth over the years and has gained the reputation of functioning as a hedge against challenging times. It stood the test of time as a store of value because people have considered it a convertible, mobile, rare, and durable asset. Even if several monetary systems broke over the years, gold stood the test of time.
Investors love gold because it’s a predictable asset, consistent in price fluctuations, and has a limited supply. It also lacks a correlation to other stores of value like real estate and equities. Institutional investors and governments also recognize its value as a store of value, and some countries even adopted it as a standard monetary system. They use their gold supply to guarantee the paper money in circulation.
Let’s Further Discuss Stores of Value
You have probably heard the phrase store of value multiple times, and if you’re looking for ways to protect your finances, you might have become more interested in the idea. Different investors give different meanings to stores of value, but they usually agree that they are assets that maintain their value regardless of the fluctuations of the other assets.
Bitcoin has been growing towards the status of store of value despite going through bear markets and being subjected to price volatility. Why did this happen? Experts believe that the fact that it lives on a decentralized network infuses it with trustworthiness. While some investors argue against Bitcoin’s store of value status, most state without hesitation that its volatility should be expected, considering its speculative nature. If you want to learn more about its value trajectory you can check the Bitcoin price prediction online.
To determine if Bitcoin could be listed among stores of value, it’s wise first to explore the features such a commodity has:
The public must confide in the reliability of the asset. No asset can achieve the store of value status if the public refuses to use it. Therefore, an asset will be listed among stores of value when individuals and organizations accept it and include it in investment portfolios. Stores of value should maintain their value over the years because investors are looking for durability, aside from trustworthiness. All stores of value have a limited supply, being one of the characteristics that enable them to increase in value as they become scarcer. However, its supply should be extensive because if it’s too scarce, its price would be exorbitant, allowing investors to purchase it. Only a small number of people or organizations would afford to invest in a too-scarce asset, and therefore, it wouldn’t be able to work as a store of value for the public. Stores of value should be averagely easily exchangeable. Stores of value are transferable and divisible so people can exchange their property and purchase or sell smaller portions. People want to make use of the value of their assets. Hence, it’s paramount for a store of value to be transferable and divisible. All units of a store of value should have identical values and characteristics.Why do Bitcoin Supporters List It among Stores of Value?
Bitcoin is the first currency based on blockchain technology; therefore, it is scarce, available worldwide, and has a decentralized nature. It’s no wonder that it has become one of the most attractive solutions for investors looking for alternatives to traditional commodities. However, considering that it’s still a cryptocurrency, it has a high volatility, making it challenging to predict its exact value.
In this context, it’s essential to have a look at the features that could position it in the series of stores of value.
It boasts durability. It’s a digital currency, protecting it from any physical wear and tear. It will exist as long as blockchain exists. It’s a portable asset because it exists digitally, so holders can take it with them when they travel. Gold, for example, is quite expensive to transport, so investors prefer digital gold when they plan to change their location often. Bitcoin is a divisible asset because it can be split into smaller units. Each Bitcoin can be divided into 1/100,000,000th satoshi. Also, each bitcoin can be exchanged for another, as they are identical, so the cryptocurrency is also fungible. It’s a scarce commodity because Satoshi Nakamoto designed it to have only a 21 million coins supply.Last Words
As mentioned earlier, many investors consider Bitcoin digital gold, so they often use it as a store of value. The difference between Bitcoin and traditional commodities is that it provides holders with both the benefits digital currencies offer and the advantages of conventional assets. Will Bitcoin become the best store of value? Only time could tell.
