Bitcoin, the Best Store of Value Humanity Has Ever Had
In this article I will make the point that Bitcoin is, by far, the best Store of Value (SoV) we have ever seen. I will firstly describe what is money, which are the functions of money, explain why Bitcoin is the number one SoV and why, at this point of time, the narrative SoV is the most important one.
What is Money?
Let's start with the fundamental question: “What is Money?”. There are many definitions of it:
- A tool to transfer value across time and space
- An accepted medium of exchange (Austrian School of Economics definition)
- A way to store human productivity
- A ledger that track who owns what
Human being, since the several thousands of years ago, the time of barter, has always been looking for an effective way to trade and exchange value. From Ray Stones in Yap island, sea shells in America islands, aggry beads in Africa to minted coins, gold and banknotes, history is full of examples of human beings choosing different commodities or assets as money.
Till the gold standard period (1871–1914), apart of minted coins and banknotes that could be inflated by the central authority that was creating them, all the assets that have been chosen as money have one thing in common: their scarcity, in the sense that they were difficult to produce in order to increase their supply. Ray stones, special sea shells, silver and gold are all assets whose production requires a lot of energy expenditure, an asset therefore whose supply is difficult to inflate. On top of scarcity, for an asset to become money, there are other relevant properties: durability, acceptability, portability, divisibility, fungibility, immutability.
Gold, with its supply increasing only 1.5%-2% per year, has been the scarcest asset on Earth with good properties to become money, and that is why the world conveyed to choose it as best form of money and opted for a gold standard system at the end of the XIX century, a system where there were banknotes backed by gold. In this way it was possible to join the scarcity of gold with the divisibility and portability of banknotes.
The Three Properties of Money & the process of Monetization
Looking at the history of money, money has served three different distinctive functions:
- 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
Any asset that became money, during its monetization process, went to four different phases: it firstly became a collectible, followed by becoming a store of value, to then become also a medium of exchange, and to finally become also a unit of account. The economist William Jevons wrote the following: “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.” Bitcoin is currently the path to become the global SoV, and that is why the narrative SoV is by far the most important at the moment, 100x more important than the narratives MoE and UoA.
Searching for a reliable Store of Value
So far the current money was also satisfying the role of SoV, humanity was storing its value into those money. Once we exited the gold standard in 1914, and even more after 1971, when Nixon depegged completely the dollar from gold, starting therefore the Fiat Standard system, money ceased to be a good store of value and triggered a deeper research for other types of SoV.
With the Fiat Standard, our money can be easily inflated with the push of a button, and this goes against thousands of years of evolution of money, where humanity has always searched for the assets most difficult to inflate.
An increase of money supply triggered higher inflation in terms of prices and the consequential decrease of purchasing power of the dollar. Below you can see the dollar depreciation over time and the cost of living of 1970 vs 2017, where we notice that the purchasing power related to the average income decreased significantly over time.
Inflation is an hidden and sneaky tax that is also hitting more the lower class. The upper class is having most of its wealth in real estate, art and stocks, and the medium class is having its wealth in the property house and index funds. the percentage of their net worth in cash is quite small, and considering that with money supply inflation the assets price increases, these classes are not as impacted by higher price as the lower class, that is living from pay check to pay check and that is unable to keep up with the prices increase. In the graph below you can see that the between 1990 and 2023 the net worth of the top 0.1% followed the money supply increase (M2), while the bottom 50% fell behind.
In the Fiat system the dollar is a very good MoE and UoA, but it is a very poor SoV. For this reason the middle and upper class looked for alternatives where to store their net worth: bonds, stocks, art, real estate, collectibles etc..
Store of Value in terms of Store of Time and Store of Energy
Money, in terms of SoV, can be understood also as Store of Time and as of Store of Energy. Anyone, regardless of being self-emoloyed or working for a company, is receiving money as result of a service or a good produced. This money is the reward for the time spent in creating value. Unless those money are spent straight away, everyone would be better off in the future if the result of that time and energy spent is stored in something that is not losing purchasing value, like art, gold or real estate.
Saving in cash is like saving our time, the time spent while working, in an asset that is inflated every year and is losing purchasing power, therefore it is not a good decision.
Why Bitcoin is the Best Store of Value
Bitcoin is the best store of value humanity has ever had, because it is the first asset with programmed scarcity (every four years the amount of Bitcoin mined per block decreases by 50%, a phenomenon called The Halving), and, even more important, with finite supply. There will never be more than 21M Bitcoin.
At the time of writing, in May 2024, we are in the V Epoch, and we are just few weeks after the last halving. Currently the reward for every block mined, on top of the fees coming from the transactions, is of 3.125 Bitcoin. For more than 5,000 years, gold has been the most scarcest asset on Earth with properties to become money (1.5%-2% per year). Since the 20th of April 2024 Bitcoin has officially become the scarcest because its supply is now increasing only by 0.8% per year, and in four years it will become 0.4%. In 2032 99% of all Bitcoin will be mined and practically there will be almost no supply inflation.
We had to wait the digital age to have an asset with finite supply. For any physical asset, the maximum with can reach is a high level of scarcity, but not finite supply, because the planet has so much of any resource that we will never run out of any material. Furthermore we have technology that is advancing every year, and the more an asset increases in value, the more it is profitable try to mine or collect it, and the more is likely that its supply will increase.
Bitcoin is different. Satoshi Nakamoto, by including many different technologies and by adding the “difficulty adjustment”, was able to create the time in a decentralized world and therefore to solve the Byzantine General Problem, avoiding the double spending problem, avoiding that a single Bitcoin could have been spent more than once. With this technology we are sure that there will never be more than 21 million Bitcoin.
That has a very profound impact on the value of the asset as SoV. As already said, human being always looked for scarce assets to store the value of their time and their energy, the scarcer the better, and ultimate advancement of a scarce asset is having a finite supply. With any other asset, a significant increase in demand will trigger a price appreciation, that will trigger an increase in supply, brining the price down. With Bitcoin, while a significant increase in demand will trigger an increase in demand, there is no possibility of a supply increase beyond the scheduled one, meaning that the only way to accommodate the increase in demand is only through price appreciation. In particular, a price appreciation that will trigger more interest, more demand and therefore a further price appreciation.
In summary, the world is significantly underestimating the importance and the magnitude of what this revolutionary technology has brought to our civilization: we have finally a savings technology that will be impossible to inflate above its programmed scarcity.
Volatility is a Feature, not a Bug
Many people criticized Bitcoin being too volatile to be a safe investment. One of the problems is that people mix volatility with risk.
First of all, for any asset, during the process of monetization, on the way from zero value to become the global reserve currency, the only path is with volatility, volatility that will decrease over time but will still be higher than a normal stock of a company.
Secondly, Bitcoin should be considered a middle or long term investment, and to be considered “safe” it should be held at least four years. Being held for a shorter period is risky. Below you can see the price appreciation during the years, where volatility is easy to spot.
But investors should not look at the daily price, but rather at the average weekly price of the last 200 weeks (circa four years). As you can see, looking at that curve, it is clear that it is a great store of value, a curve that is going only up. That means that everyone who bought Bitcoin and hold for at least four years, a requirement that Bitcoin are continuously highlighting, is in profit.
Holding Bitcoin, or, as Bitcoiners like to say, HODLing Bitcoin, seems easier that it is in reality. We had several retracements of 20%–30%-50% and even bear market with the price crashing 60%-70%–80%.
Many people are convinced they are able to hold it also during these periods, but once the crash happens they go in panic and they sell at a loss. A common path for those who have a low conviction on Bitcoin, a conviction that can be built only through education, through many hours of deep study of what Bitcoin is, of what money is and how money works.
A Unique Opportunity
On top of being a great store of value, Bitcoin represents now a unique opportunity because, still in 2024, is the most asymmetric bet of our times, because the general level of understanding is still quite poor. Never in history we have seen an asset where the opinion of those how have not deeply studied Bitcoin differ so much from those who have studied it.
Furthermore, 2024 is definitely the year where the risk/reward ratio has never been more in favour to Bitcoin investor. At the same time there is a big potential from the upside, and the risk is much lower than some years ago, especially after the approval of the Bitcoin Spot ETFs, a big stamp of legitimisation coming from the financial institutional world. One of the funniest facts of being a Bitcoiner is that most people, when they hear that someone is “heavily exposed on Bitcoin”, they think “oh wow, that guy like risk so much!”. Nothing more far from the reality, because Bitcoiners are in general very risk adverse, and they are so exposed on Bitcoin because they don´t like risk. As stated earlier, how to perceive this asset is all about education.
I like to say that the 10th of January 2024, the day when nine Bitcoin Spot ETFs have been approved in US, has triggered the end of the first Era of Bitcoin (2009–2024), and the beginning of the second Era (2024-XXXX). Till the approval Bitcoin has been treated from the financial world mostly as a different, highly speculative, very risky asset, and an asset used by criminals and with no intrinsic value. While there are still many advocates for this narrative, we are seeing more and more people from the financial world changing opinion, first of all Larry Fink, CEO of Blackrock, who defined Bitcoin as a “Flight to Quality”. With the more time passing, more and more people will shift from an adversarial opinion to a neutral opinion or to a in favor opinion. Already some independent financial advisors are recommending a 1%–2%–3% allocation in Bitcoin.
That said, Bitcoin doesn´t need the Wall Street approval, Bitcoiners already know that Bitcoin is the best money humanity has ever had, but on the path of becoming the global store of value passes through the “financialization of the asset”, including that Wall Street approving the ETFs. The ETF instrument will allow many institutional money to flow into Bitcoin, money coming from institutional investors, pension funds, retirement plans, 401k accounts, mutual funds, insurance funds. We are talking of assets with a total value of tens of trillions of dollars. Even 1% of that would trigger a significant appreciation of the price. Also for many retail investors the ETFs is a very good alternative than buying Bitcoin in an exchange or having Bitcoin in self custody: many investors have their brokerage portfolio and are not willing to open an account in an exchange and even less to learn self-custody to own Bitcoin, and they will be opting for the ETFs as the vehicle to be exposed on Bitcoin price.
Gradually, and then Suddenly
Still after four months from the ETFs approval, the real capital coming from institutions is yet to come. We are seeing many institutions reporting an exposure in Bitcoin ETFs, but the amount of capital and the amount of institution is still very low compared to the Bitcoin potential.
The reason behind is that big institutions like insurance funds, 401k holders, mutual funds and retirement plans firms need months before being able to offer it and before recommending a certain allocation. Without the ETFs approval they would have never looked at Bitcoin, now they are doing the due diligence and thanks to the ETFs product the time needed is significantly reduced compared to evaluating Bitcoin as an asset, because owning Bitcoin directly would have involved also the legal, tax, and accounting department, being Bitcoin a completely new asset. With the product in evaluation being an ETF, a super regulated one, any investment company will need finance, leadership and maybe compliance approval, but not more. Therefore I believe we will be seeing the real capital coming from institutions during the second half of 2024, having given 3–6 months to these companies to perform their due diligence.
Once we start to see that inflow, it will trigger the inflection point that will represent the end of the “Gradually Phase” and the beginning of the “Suddenly Phase”. With the start of the suddenly phase, no one knows how high the Bitcoin price can go, because there has never been an asset like Bitcoin, and there has never been the institutional world going after an asset with finite supply. I believe it will generate a supply shock that will send Bitcoin price so high that the next bull run will be mentioned in every history books that will include the history of the financial market.
At one point the financial world will convene that, by default, a x% of Bitcoin should be a part of every balanced portfolio.
Bitcoin Potential
We can try to estimate which is the Bitcoin potential, meaning the value of Bitcoin once it shifts from a Risk On asset to a Store of Value. The total global asset value is $900T, and Bitcoin market is at the moment only $1.2T. Bitcoin can acquire a portion of every other asset class, not only gold. Portion of stocks, real estate and bonds will inevitably flow into Bitcoin. I think it is realistic to assume that 5% of the total global asset value moving to Bitcoin in the next 10 years, meaning $45T of value, equaling to circa $2M per Bitcoin, $2M in today dollars.
With the current price being at $62k, it is a 32X price appreciation in real terms, an appreciation even higher in nominal term because the dollar will keep depreciating and will keep losing purchasing power.
This is therefore a unique opportunity, and to be more specific THE OPPORTUNITY of our generation, as THE INTERNET was the opportunity of the previous once.
Conclusion
Since several thousands of years, humanity has always been looking for assets that would work as store of value, assets that would hold the value of their time and energy spent while creating that value. Bitcoin, with unique characteristic of programmed scarcity and finite supply, represent the apex of these assets, an asset engineered to go up forever.
Considering that Bitcoin is a new, disruptive technology, that the evel of general education on money is quite low, that Bitcoin monetary value proposition would question topics we have been given for granted in our life, and that the overall level of mainstream media coverage on Bitcoin is full of FUD and not representing the reality, nowadays only a very very small percentage of the population has understood the real value of Bitcoin.
I am very happy and proud to be part of that small percentage. We have understood that Bitcoin has already won, it is only a matter of time for the world to understand its value. Understanding it early gives a person a unique favorable position because Bitcoin is, at the same time, the most asymmetric information and the most asymmetric opportunity. As with the internet, we don´t need the whole population understanding it. During the 1990s only a small percentage of the population understood its real value and they were those who benefited from it the most in the 2000s and 2010s. At one point the value of internet was so clear that every person was using it, without even knowing how it works. The same will play out for Bitcoin: in 10–15–20 years, most of the people will see Bitcoin as the best SoV, and therefore will “save in Bitcoin”, without even knowing what Bitcoin is and what money is.
I strongly encourage you to spend time on study Bitcoin so that you can also benefiting from it. The earlier you understand its value, the more you will benefit from it. For the next Bull Run, we don´t need more retails investors, because it will happen with or without retail investors. Once the real capital coming from institutions flows into Bitcoin, we will see price levels unforeseeable from the common investors. The train will be leaving at anytime and it is up to any retailer when to jump on it. In other words, “I personally think that Bitcoin will reach $1M in value before the end of the decade.
Every person has different sensibility and priorities, and the best Bitcoiners can do is to recommend them to study Bitcoin and enlighten the best way to understand it. But the person interested needs to “do the work”. At the end, it is up to each person to decide how to allocate the real, scarce asset he has (apart of Bitcoin): his Time.
I am pretty sure once we reach unforeseeable levels of price many common people will complain that it is now too late to join. Each of them should complain with himself, because Bitcoiners are telling you to study Bitcoin since long and, when asked, will simply reply with “I Told You So”.
