• This article evaluates whether Bitcoin can be used as a store of value (SoV).
• On-chain metrics such as realized capitalization and holding trends demonstrate that there is belief in bitcoin as an SoV.
• Despite its price volatility, BTC exhibits qualities of sound money including durability, portability, scarcity, uniformity, and divisibility.
Evaluating Bitcoin as a Store of Value
Two On-Chain Metrics Show Belief In Bitcoin As an SoV
Two on-chain metrics – realized capitalization and holding trends – demonstrate belief in bitcoin as a store of value (SoV). Realized capitalization takes into account the cost basis for each coin held by investors, rather than just its current market price. This provides insight into how invested individuals view the asset as a long-term investment. Holding trends also show that more people are buying and holding onto their coins for longer periods of time instead of flipping them quickly for profits or losses.
Price Volatility is Expected During Price Discovery Phase
For an asset during its speculative, price discovery phase – like bitcoin is now – volatility should be expected. New technologies often capture the attention of traders and speculators alike, resulting in wild fluctuations while participants try to determine true value. It’s important to recognize these drawdowns alongside its upward trajectory; BTC has gone from trading below 1 cent to reaching nearly $70K in 2021 before settling around $20K today.
BTC Possesses Qualities of Sound Money
Despite this volatility, bitcoin does possess qualities associated with sound money including durability, portability, scarcity, uniformity, and divisibility. These features have made it increasingly attractive to those looking for potential protection against inflationary pressures seen elsewhere in the markets.
Acceptance is the Final Uncertain Factor
The final uncertain factor when it comes to evaluating BTC’s use case as an SoV is acceptance: will enough people buy into it and use it? After 14 years since its inception we’re still exploring this question but signs point towards increasing adoption across multiple industries worldwide which could enable greater liquidity over time.
Bitcoin’s journey so far has been volatile but promising; it continues to exhibit qualities associated with sound money while growing acceptance could facilitate increased liquidity over time allowing us to further evaluate its use case as a store of value.