Bitcoin as Store of Value, the Narrative that currently Matters the Most
I am writing this article to make a compelling case on Store of Value being currently, and by far, the most important narrative for Bitcoin, while Medium of Exchange and Unit of Account narratives will be globally relevant in the next decade.
The Process of Monetization
Money is currently represented as an asset that has principally three properties:
- Store of Value (SoV): a commodity, asset, or money that retains its value, or purchasing power, and does not depreciate.
- Medium of Exchange (MoE): an intermediary instrument or system used to facilitate the purchase and sale of goods and services between parties
- Unit of Account (UoA): a standard numerical monetary unit of measurement of the market value of goods, services, and other transactions
Looking at history, the common path for an asset in the process to become money is firstly to be a collectible, then to become a SoV, followed by becoming also a MoE, to finally become a UoA.
The Economist William Jevons explained it by writing “Historically speaking … gold seems to have served, firstly, as a commodity valuable for ornamental purposes; secondly, as stored wealth; thirdly, as a medium of exchange; and, lastly, as a measure of value.”
At the moment criticts of Bitcoin are stating that considering that Bitcoin is not yet so much adopted as medium of exchange, the value proposition of Bitcoin in being a “peer-to-peer version of electronic cash”, as stated at the beginning of the White-paper, failed. Nothing can be far more than the truth.
In reality Bitcoin is currently on the way to become global SoV. Once it has reached that level, than there will be likely be demand to be used for payments.
Reasons why it is not used as MoE (in the West World)
There are several reasons why in the West World it is not commonly used as Medium of Exchange.
- Merchants are not accepting it: a negligible percentage of merchants are currently accepting Bitcoin as MoE
- The actual system is good enough as MoE: Euro and dollar, using the credit card system and software like Apple Pay or paypal are very good MoE vehicles.
- Selling Bitcoin is a taxable event: in many countries Bitcoin is treated as an investment asset and once sold, as with stocks of a company, the profits are subjected to taxation
- Holding the hard money and spending the weak money: if a person has both Bitcoin and dollar, knowing that over time the dollar will depreciated and Bitcoin will appreciate, he is incentivised to spend in dollars and save in Bitcoin
- Current technology is not so advanced for day to day transactions: Bitcoin base layer can process seven transactions per second, therefore it will never be used for day-to-day transactions. Layer two solutions are still to complex for the common person to use them.
- High Volatility: so far the volatility remains so high (20k in Dec 2017 → 3k in Jan 2019 → 69k in Nov 2021 → 16k in Nov 22 → 74k in March 2024), with also oscillations of thousands of dollar in single days, it is not a good fit as a reliable MoE. With time volatility will decrease.
Importance of Development as MoE
Highlighting Bitcoin also as MoE is very important, also because at the moment it is the only technology where a person can send value across the globe in matter of seconds.
All developments on layers twolike the lightning network or Fedimint are very important as well, because at one point the world will need a reliable layer two to transact in Bitcoin. But we are not there yet, and very likely we will not be at this point in the next 5–10 years.
During this time the feature MoE of Bitcoin will remain limited to Bitcoiners and to those who are interested in new technologies. Surely there will be more and more merchants accepting Bitcoin, but so far Bitcoin is not considered a global SoV, the percentage of merchants accepting Bitcoin will remain negligible.
Statements in Favour the Narrative SoV preceding MoE
During these years, many Bitcoiners, very know or less known have highlighted that SoV comes before than MoE
- Vijay Boyapati: in his Article/Book “The Bullish Case for Bitcoin” wrote the following: “Using modern terminology, money always evolves in the following four stages: a) Collectible: In the very first stage of its evolution, money will be demanded solely based on its peculiar properties, usually becoming a whimsy of its possessor. Shells, beads and gold were all collectibles before later transitioning to the more familiar roles of money. b) Store of value: Once it is demanded by enough people for its peculiarities, money will be recognized as a means of keeping and storing value over time. As a good becomes more widely recognized as a suitable store of value, its purchasing power will rise as more people demand it for this purpose. The purchasing power of a store of value will eventually plateau when it is widely held and the influx of new people desiring it as a store of value dwindles. c) Medium of exchange: When money is fully established as a store of value, its purchasing power will stabilize. Having stabilized in purchasing power, the opportunity cost of using money to complete trades will diminish to a level where it is suitable for use as a medium of exchange. In the earliest days of Bitcoin, many people did not appreciate the huge opportunity cost of using bitcoins as a medium of exchange, rather than as an incipient store of value. The famous story of a man trading 10,000 bitcoins (worth approximately $94 million at the time of this article’s writing) for two pizzas illustrates this confusion. 4) Unit of account: When money is widely used as a medium of exchange, goods will be priced in terms of it. I.e., the exchange ratio against money will be available for most goods. It is a common misconception that bitcoin prices are available for many goods today. For example, while a cup of coffee might be available for purchase using bitcoins, the price listed is not a true bitcoin price; rather it is the dollar price desired by the merchant translated into bitcoin terms at the current USD/BTC market exchange rate. If the price of bitcoin were to drop in dollar terms, the number of bitcoins requested by the merchant would increase commensurately. Only when merchants are willing to accept bitcoins for payment without regard to the bitcoin exchange rate against fiat currencies can we truly think of Bitcoin as having become a unit of account.”
- Lyn Alden in her article “A Look at the Lightning Network”, in the paragraph “Store of Value Precedes Mass Medium of Exchange” wrote the following: “For the Bitcoin network, usage as a niche censorship-resistant medium of exchange came first, followed by it being used as broader store of value, which became a much larger use-case. From there, the more it is used as a store of value and the better its scaling solutions become, the more it can be widely used as a mass medium of exchange. Let’s consider adoption patterns. Suppose you owned some bitcoins and other cryptos sometime in the 2011–2017 range, when all of those various blockchain monies and forks were in the heat of their competition against the Bitcoin network as a medium of exchange, and being marketed as such. Before the launch of the Lightning network, if you were a person with easy access to banking and payment services and were not de-platformed from anything in particular, why would you spend bitcoins on anything? If the number of dollars keeps increasing every year, but bitcoins have a hard supply cap at 21 million coins, why would you want to give your bitcoins to others? Unless you’ve been holding bitcoin so long that it has become a meaningful share of your net worth, or you actively work in the industry and potentially even get paid in bitcoin, you probably wouldn’t. This problem is then magnified by the fact that bitcoins have ten minute average confirmation times, bitcoin cash coins have ten minute average confirmation times, and even litecoins and dogecoins which are meant to be faster have 2.5 minute and 1 minute average confirmation times respectively, which is still too slow for convenient in-person transactions. The process is longer if you want to wait for a number of confirmation times to reduce the probability that the transaction will be reversed. These are crappy things to buy coffee with in that form. It’s like trying to buy coffee with a wire transfer. No thanks. That’s what Mastercard is for. There are circumstances where the Bitcoin network’s base layer payment options are ideal as a medium of exchange, but to try to force it in a situation where it is not ideal, doesn’t make sense. As I described in my “What is Money, Anyway?” article, bitcoin base layer payments are tank-like censorship-resistant payments. Owning bitcoin represents the stored-up ability to make censorship-resistant global payments in the future, and/or to portably bring wealth around the world even by just memorizing twelve words or holding a private key somewhere on your physical person or in your digital files. This transaction problem is then further compounded by the fact that every cryptocurrency transaction is a taxable event. Governments don’t want other monies to compete with theirs if they can help it, and so they view your bitcoins as commodities, and if you exchange them for something, you’ve now locked in a capital gain that is taxable. Assuming you don’t want to break tax laws, you technically need to keep track of every bitcoin/crypto transaction that you do for tax season. Furthermore, the number of people that have any meaningful amount of their net worth in bitcoin or other coins remains very low. What is the immediate incentive for a merchant to accept bitcoin or other coins, unless they happen to serve a niche industry where the percentage of bitcoin or crypto users in their customer base is higher than normal? I’ve described this merchant acceptance problem in prior research pieces when talking about the credit card oligopoly. There are four meaningful card networks in the US, which also extend globally: Visa, Mastercard, American Express, and Discover. These have been around for decades. Merchants accept them as payment because that’s what all of their customers have in their wallets. Customers have them in their wallets because merchants widely accept them. These networks’ flywheels were bootstrapped decades ago. It would be nearly impossible to create a fifth credit card in the US. You’d have to convince merchants to accept it despite users not yet having it, and you’d have to convince users to get one even though merchants don’t accept it yet. It’s really hard to bootstrap from nothing and compete with existing network effects. Bitcoins and various cryptocurrencies encountered the same problem. Some places accepted them as a novelty, and some people wanted to spend them here or there, but for the most part the topic of cryptocurrencies as everyday payments was a dud during that whole 2011–2017 era, just like trying to launch a fifth credit card would be, except slower and more taxable. The primary users of bitcoin for medium of exchange purposes in those early years were people who were de-platformed in various ways. Cypherpunks were naturally attracted to bitcoin’s censorship-resistant payments. Wikileaks turned to accepting bitcoins when they were de-platformed from PayPal in 2010. A subset of early users bought drugs on the internet with bitcoins until those centralized marketplaces were shut down. Human rights advocates began using bitcoin in authoritarian regimes with low banking access or vulnerability to arbitrary bank freezes. These use-cases weren’t for efficiency; they were for peer-to-peer censorship resistance. For mass medium of exchange usage, meaning far beyond niche censorship-resistant use-cases, a new money likely needs to become a store of value first, if it is to arise organically rather than through government decree. And the payment experience needs to compete with various near-instant fiat payment methods. A lot of people need to each have a lot of the money, and then start asking merchants, “why don’t you accept this yet?” As it gets big enough or becomes perceived as offering better payment solutions than legacy systems, a number of jurisdictions can even remove the per-transaction tax on it.”
- Robert Breedlove, author of the “What is Money Show”, in the episode of “Discussing Lessons on Monetary Evolution with Femi Longe (WiM #442) (LINK), at minute 22, said the following: “My view here is, and this is informed by the economist William Jevons, he was describing the monetization of gold, and at the beginning gold was just a collectible. People liked to adorn themselves with it like jewelry. But that created some reservation demand for gold. And all of a sudden there was a demand for gold and for these sort of ornaments or adornment purposes. And so that led to gold becoming like a transition from a collectible into a store of value, and its purchasing power tended to rise over time. So when people started to use it as a saving tool, and then people used gold as savings tool as they accumulated enough savings and that eventually they want to spend it again. People value the purchasing power of the money, not the money itself. So then it naturally transition again from store of value to medium of exchange. And then finally, once it is spent widely enough, people start to denominate prices in the money and think in terms of the money finally transitioning in unit of account. And so I subscribe to that and I think Bitcoin is going naturally to that phase”
- Cory Klippstein, CEO of SWAN, highlighted in X the following: “Most people don’t spend Bitcoin till they have nothing else to spend. That’s why the Medium Of Exchange adoption curve lags the Store Of Value adoption curve. By 2035 you’ll be able to buy most goods and services in most places around the world denominated in sats.”
5. Joe Carlasare, commercial litigator supporting Bitcoin, stated in a X post that “Medium of exchange is nowhere near as important as store of value. No matter how attractive the exterior of a house looks, it will crumble if it’s not build on a solid foundation. For a new money such as Bitcoin to succeed, it makes no sense to prioritize a transaction layer to the detriment of store of value. It’s like focusing on lavish windows for a house set on shifting sands. It’s all an exercise in futility if the essential, underlying structure — the base layer — is compromised.”
6. Michael Saylor, CEO of Microstrategy, was interviewed by the Forbes contributor Javier Bastardo and the related article stated the following: “Saylor argued the compelling use case of this technology is “capital preservation,” so using it for payments doesn’t make that much sense for him. He compared owning bitcoin with owning real estate and argued that nobody complains about being unable to spend a fraction of their buildings. “Medium of exchange is worth only one trillion dollars, store of value is worth a hundred trillion dollars (…) medium of exchange is a distraction (…) Bitcoin is competing with gold”, he underscored.”
7. Stephan Livera, Bitcoin podcaster and Head of Education at Swanbitcoin, and Preston Pish, marcoexpert and Cofounder of TIP, in one of the episode of the Stephan Livera Podcast, called “Bitcoin and Investing with Preston Pysh” discussed how SoV narrative comes before the MoE ones and that for the Medium of Exchange one the demand is not there yet (Paragraph “The importance of having a deep appreciation for where you are at and the adoption timeline”, from 38’ 40” to 47’40”)
8. Rip Vanvinkle wrote in X the following: “No one has a medium of exchange problem. Everyone has a store of value problem. Why on earth would someone bother with Bitcoin if all it did was enable p2p transactions as a currency? Large blockers argue against the store or value narrative in favor of the MoE narrative. Even in the face of real world evidence, (8 years of it) as their own MoE sees little usage and BTC continues its ascent. Bitcoin can only ever be currency after enough people hold it. Why would they hold it if it’s not solving a major problem like protecting people from fiat debasement and loss of purchasing power? Large blockers are still bitter after 8 years, making the same non-sensical arguments. Get over it guys. The market made its choice.”
“Using Bitcoin”
I often hear, from Bitcoiners and not Bitcoiners, that “Holding Bitcoin is not enough”, because we need to “do something with it”, we need to “use Bitcoin”, and one option is spending it. Well, my opinion is that HOLDing Bitcoin represent using Bitcoin as Store of Value, the narrative that counts the most in these years.
If someone is interested in the narrative MoE, I strongly recommend to go on with it. Bitcoin has great potential, several years from now, a global MoE, therefore it is important that there are people spending time and energy to develop the systems and structure that will be needed one day.
What I disagree is the complain towards those who are holding Bitcoin and promoting Bitcoin as SoV but are not actively spending Bitcoin or advocating for it.
What we need now the most is exactly more and more people regularly saving in Bitcoin, having a job, spending less than they earn and saving the delta in Bitcoin. They are the pillars of the “Price Floor” increase for Bitcoin. Every four year cycle we see Bitcoin price falling, but the minimum price is higher with every new cycle, also because there are always new “Bitcoin holder” who are not selling, but holding and keeping buying regularly.
Conclusion
Bitcoin is the best money humanity has ever had. At the moment its monetisation path passed the “collectible” phase and it is on the way to become global SoV. I am quite confident that on reaching this goal there is no discussion or doubt: it is a battle that Bitcoin already won. Bitcoiners, while keeping holding and buying regularly Bitcoin, are patiently waiting the financial world to understand that Bitcoin is the best Store of Value, a savings technology engineered to go up forever. It has the potential to become also a global MoE, and this can happen only after he has reached the status of Global Reserve Currency worldwide. If it will become also a global MoE I put a question mark, because the world has a great need of a good SoV, but, at least the West World, considering the currently paying system, the MoE is “good enough”. Surely Bitcoin has all the potential to become global MoE, and to know if that potential will become reality we will have to wait the next decade.
Meanwhile, my financial advice remains always the same: “STUDY BITCOIN, AND DO IT QUICKLY!”
Last, but not least, whenever someone is telling me that Bitcoin monetary value proposition has failed because it is not an accepted medium of exchange, I will send him this article recommending him to read it carefully, and add what Satoshi wrote in one of his emails “If you don’t believe it or don’t get it, I don’t have the time to try to convince you, sorry.” Afterall, we have always to keep in mind that “Bitcoin is not for everyone”
