Skip to content Skip to sidebar Skip to footer

Bitcoin As A Store Of Value Is Okay, Here’s Why

Bitcoin. This cryptocurrency has been facing various different controversies since its inception. Yes, the main face of the blockchain industry, Bitcoin, remains the most valuable cryptocurrency in the world after more than a decade. It looks like the popularity of Bitcoin won’t be replaced by any other cryptocurrency anytime soon. However, it’s important to know that there is a different narrative about Bitcoin nowadays compared to 10 years ago. 

When it was introduced to the public for the first time, Bitcoin was intended to be the peer-to-peer electronic cash meant to replace fiat. The earliest adopters of Bitcoin often bragged about how fast and cheap to transfer money using Bitcoin from different countries. It was not comparable to bank wire transfers where the transaction fees were much more expensive, and it needed more than 2-3 business days just to move money from country A to country B.

Nevertheless, the “narrative” about Bitcoin has changed quite a bit in recent years. Nowadays, most Bitcoin believers believe that Bitcoin’s main purpose is to be used as a store of value, comparable to physical gold itself. Yes, many people even see Bitcoin as “digital gold”. They see Bitcoin as a hedge to the failing global economy (if that will happen again like in 2007-08).

Bitcoin Has A Finite Supply

One of the main reasons why Bitcoin is compared to gold and other precious metals is simply because Bitcoin has a finite supply. Just like gold, where its supply on planet Earth is finite, Bitcoin also shares the same characteristics. You cannot create Bitcoin out of thin air, and you cannot manipulate the amount of Bitcoin you can mine, due to its decentralized nature.

Add the fact that the mining reward mechanism keeps getting halved in approximately every four years; it makes Bitcoin even more valuable due to the increasing demand but decreasing supply. Some skeptics believe that one day Bitcoin price would crash because it’s not backed by anything. But as long as there are enough people believing that Bitcoin is indeed “valuable,” the price would actually continue to rise in the long term, because it would be harder to get, and there would be an imbalance between Bitcoin’s demand vs. supply.

Bitcoin Is Still Failing Its Original Purpose But It’s Okay

As written above, the original purpose of Bitcoin was to be used as a peer-to-peer digital cash. Bitcoin was meant to be used as an alternative to fiat currencies. Satoshi Nakamoto and many of Bitcoin’s earliest developers believed that the central banking system had breached the trust of the people. It would be much better if the people had their own internet currency where no central figure could control the demand and supply of the same currency. And they believed that currency would be Bitcoin.

However, fast forward to today, Bitcoin is simply not able to process enough transactions per second to be taken seriously as a cash replacement. Bitcoin has high transaction fees, and its blockchain is also too slow to be used in retail transactions. In other words, Bitcoin has failed its original purpose as a P2P digital cash.

There are two things to remember, though. First of all, just because it’s currently failing to serve its original purpose, it doesn’t mean that Bitcoin will keep failing. There are many developers that are already trying to develop their own solutions to fix this problem. The most popular is called the Lightning Network. When the Lightning Network gets adopted and becomes more mainstream, it’s actually possible for people to finally start transacting with Bitcoin without the need to worry about its transaction fees and speed. 

Secondly, Bitcoin has found its true purpose, which is as a store of value. As I have mentioned above, it’s okay for Bitcoin to be used as a store of value. Bitcoin has similar characteristics to gold when it comes to finite supply, and it was created as an alternative to the fiat system, anyway. It makes sense to see Bitcoin as a hedge to our failing economic system because Bitcoin is not controlled by any central bank or any government entity.

2020 And The Next Few Years Will Be The Huge Test For Bitcoin

So far, Bitcoin has proven itself as a good hedge against the global economy. In 2020, Bitcoin price has been slowly increasing when the global economy entered an uncertainty phase due to Wuhan’s coronavirus outbreak. Many people believe that the instability of Chinese economy would certainly impact other parts of the world. And when it happens, Bitcoin price might keep going up, because many traders already see Bitcoin as a good hedge against global financial stability.

Bitcoin itself has never faced a situation like this before. Even though Bitcoin was the outcome of 2007-08 global financial crisis, it never faced a time of financial crisis. It’s actually possible that Bitcoin’s price would go through the roof if we ever face another global financial crisis (whatever the cause).

However, Bitcoin has been deemed as a very volatile asset, even more volatile than the stock market itself. It would not surprise me if Bitcoin price would go down when the financial crisis actually hits our world. Either way, it’s interesting to see which way Bitcoin would go in the upcoming years. I believe 2020 and the upcoming few years would be a huge test for Bitcoin’s narrative as a store of value and alternative to precious metals.

Leave a comment