Bitcoin’s storage cost
Storing wealth in bitcoin is not for free. That cost is traditionally called carry for other assets and is easily quantifiable for bitcoin and is ca. 2.1% p.a. nowadays, read why.
Fees
The most obvious cost of storing wealth in bitcoin is that it requires some fee to move it in and out of a wallet. The aggregate amount of fees visible on the block chain as it is the excess income of miner above the subsidy.
These fees were paid by those who moved their coins, and were proportional to the byte-size of the moving transaction, not to the moved amount. Nevertheless they were explicit costs of storage billed for use of the ledger.
Dilution
Miners also receive new bitcoins for their work in a predefined schedule.
New coins increase the supply of coins to market and would drive their value lower if there were not other factors that dominate price movements, namely:
Capital inflow
Those who buy bitcoin for an other currency contribute to capital inflow into the bitcoin economy and those who sell drain its capital stock. The net effect of these in- and out-flows dominate price movements and hide the deterministic value decline dilution would cause.
Cost of mining
Bitcoin mining implies significant costs. Miner cover production costs by selling at least a fraction of their production. They contribute to capital inflow only to the magnitude of costs that they cover by selling bitcoins. (This thereby assumes constant bitcoin price.)
Consequently miner’s profit that was kept in bitcoin decreases wealth of holder through its dilution. This is also obvious since where else could the value come from if not covered by new inflow?
Note that if competition drives miners profit margin to zero and they cover their costs at selling bitcoin for a constant price or by paying costs entirely in bitcoins, then their activity no longer dilutes wealth of holder. This is true in the limit and temporarily at some points in bitcoin’s history but not in general.
We can observe changes to miners’ profit margin through changes of mining difficulty. If bitcoin current market price is not sufficient to sustain production then miner will turn off some devices to save electricity, which will be observable as drops in difficulty. This is certainly an imprecise measurement as it gives us a hint when miner with worst equipment and higher energy prices give up. Industry leader are likely still profitable and even cheer the shakeout of competition that will give them higher market share as price recovers.
Mining cost estimate
The most recent example where mining difficulty recovered from a longer downturn was in January 2019 at a bitcoin price of 3400 USD. I suggest to assume this as the most recent estimate of bitcoin mining costs for a unit.
Storage cost estimate
Using this mining cost estimate and current bitcoin price of 8400 USD we can assume a current mining profitability of at least 5000 USD / bitcoin produced.
This means that at current schedule of 12.5 bitcoins per block miners’ profit is ca. 9 million USD/day. This profit dilutes holders wealth at a daily rate of 9 million USD / 150.3 billion USD (market cap), that is ca. 2.1% pa.
Storage cost of wealth in bitcoin is therefore currently 2.1% annually plus transaction cost that is negligible for now. Storage cost will drop significantly with halving as that will cut into miners’ profitability.
This cost is hidden by more dominant price moves caused by short term capital in- and out-flows (speculation), but is nevertheless endured by investors, who should know about it.
