The Store of Value Debate: Bitcoin’s Volatility Amid Market Trends

The Store of Value Debate: Bitcoin’s Recent Volatility

On days like today, it’s tempting to dismiss bitcoin (BTC) – particularly the assertion that the pioneering cryptocurrency serves as a store of value, akin to digital gold. Recently, BTC experienced a significant drop, mirroring trends in the wider financial markets. On Monday, it briefly fell below the $50,000 mark, reaching its lowest level since February, before recovering slightly. By early afternoon in New York, bitcoin was down 9% over the course of 24 hours, trading at approximately $53,387.67.

For skeptics, the volatility of bitcoin provides ample opportunity to echo a humorous line from Billy Crystal, asking, “Where’s your messiah now?” In the midst of this downturn, Bloomberg columnist Joe Weisenthal remarked on social media, “The Bitcoin ‘store of value’ thesis is getting blown up right now.” He continued, expressing that bitcoin appears less like “The New Gold” and more like “three tech stocks in a trenchcoat.”

However, there’s a more nuanced perspective on this topic that necessitates a broader view. My colleague, Andy Baehr, the head of product at CoinDesk Indices, pointed out, “We shouldn’t confuse store-of-value assets with flight-to-quality assets.” He elaborated that the former reflects long-term expectations, while the latter pertains to immediate market flows and reactions.

The emphasis on the “long term” is crucial. On a day like Monday, when the Nikkei index plummeted by 12%, the atmosphere was reminiscent of the infamous “Black Monday” of 1987. During such times, U.S. Treasury bonds often become the go-to flight-to-quality asset, drawing investors who seek safety. Consequently, Treasury yields have dipped to their lowest levels since January.

It is evident that bitcoin does not currently possess flight-to-quality status. Baehr noted, “It’s still undoubtedly a volatile, often speculative asset that is frequently traded with leverage.” Yet, he believes that bitcoin’s inherent qualities—its scarcity, portability, and independence from any government or corporate policies—render it a compelling option for those considering it as a store of value.

Investors who adopt this perspective on bitcoin view it not merely as a hedge against day-to-day market fluctuations, but rather as a safeguard against the gradual decline in the purchasing power of the U.S. dollar. With a maximum supply capped at 21 million coins, bitcoin is insulated from the unpredictable actions of policymakers.

• Baehr explained, “For those who hold it long-term, particularly those concerned with the national debt and central bank policies, it’s less about bitcoin’s value increasing and more about its value relative to a declining dollar.”

Surprisingly, it is feasible for an asset to embody characteristics of both a risk investment and a store of value simultaneously. Baehr remarked, “Those who utilize bitcoin as a store of value are well aware of its volatility.”

Arthur Breitman, a co-founder of the Tezos blockchain, added another dimension to the conversation, asserting that bitcoin’s resistance to confiscation enhances its status as a store of value. He stated, “Bitcoin is a good store of value if … bank accounts are being seized.” This highlights the contextual nature of its value.

In another reply to Weisenthal, Dan McArdle, co-founder of crypto data platform Messari, referenced an old prediction he made regarding bitcoin’s performance during various crises. He mentioned that it would likely “sell off under liquidity-crisis scenarios, but surge during sovereign-debt or fiat-confidence crises.” Monday’s market behavior was a case in point of the former scenario.

As for more traditional stores of value, gold’s price was down about 1% Monday afternoon. Alex Thorn, head of firmwide research at crypto investment bank Galaxy Digital, commented, “It’s unfair to judge bitcoin against something that’s thousands of years old when it’s still in its infancy.” He added that investing in bitcoin is akin to making a “venture-like bet on its future as a store of value.” Thorn concluded, “Bitcoin is still undergoing adoption, which explains both its volatility and growth potential.”