Author: Catherine
Created:
In cryptocurrency, "store of value" describes a digital asset, like Bitcoin, that can hold its purchasing power over time, allowing it to be saved, retrieved, and exchanged later without significant loss of value. Assets considered to be good stores of value possess traits such as durability, liquidity, and scarcity. The primary goal of holding a store of value is to protect wealth from the long-term effects of inflation, which erodes the purchasing power of traditional currencies.
Key characteristics of a store of value
- Preserves Wealth: It maintains or increases its value over time, providing protection against inflation and currency devaluation.
- Durability: The asset is not subject to physical deterioration or significant loss of value over time.
- Scarcity: Its supply is finite or difficult to increase significantly, mimicking assets like precious metals.
- Portability: It can be easily transported and transferred globally, making it convenient for storage and exchange.
- Divisibility: The asset can be divided into smaller units for flexible transactions.
- Liquidity: It can be readily redeemed for other assets or fiat currencies when needed.
- Acceptability: A significant portion of the market recognizes the asset's value.
Store of Value Examples
- Traditional: Gold, real estate, and some stable currencies have historically served as stores of value.
- Cryptocurrency: Bitcoin is often referred to as "digital gold" due to its limited supply and potential to act as a hedge against inflation.
Why it matters for crypto
- Hedge against Inflation: For investors, cryptocurrencies like Bitcoin offer a way to shield their wealth from the declining purchasing power of fiat currencies caused by rising inflation.
- Long-Term Wealth Preservation: The ability to store value in a digital asset allows individuals to save for the future, knowing their wealth will not significantly depreciate.
