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Bitcoin’s Volatility in Perspective
Especially on volatile days, Bitcoin’s (BTC) reputation as a store of value is sometimes under question. Critics pointing out its notable price swings rapidly challenge its stability. Critics, such as Bloomberg columnist Joe Weisenthal, contend that the present behavior of Bitcoin more closely reflects those of tech stocks than of a reliable asset like gold.
Understanding Store of Value vs. Flight to Quality
Separating “store of value” from “flight to quality” assets helps one to appreciate Bitcoin’s value proposition. Head of product at CoinDesk Indices, Andy Baehr claims that while a flight to quality describes assets investors rush to during market turbulence, a store of value is a long-term concept. Safety often comes from U.S. Treasury bonds on days of extreme market stress, such Monday when the Nikkei dropped 12%. Given its present volatility, bitcoin does not yet fit this function.
Bitcoin’s Long-Term Potential
Notwithstanding its volatility, Bitcoin’s qualities—scarcity, portability, and independence from government policies—make it an interesting long-term store of value candidate. Investors worried about the dollar’s devaluation see Bitcoin as a deflationary counterpoint. Bitcoin’s supply is limited at 21 million, unlike fiat money, so offering a predictable and limited resource.
Bitcoin as an Insurance Policy
For many, Bitcoin serves as a sort of insurance against the declining purchasing power. Given rising national debt and broad central bank policies, those long-term Bitcoin holders are more focused on its potential to retain value over time than they are on daily price swings.
The Dual Nature of Bitcoin
Crucially, Bitcoin is a risk asset as well as a possible store of value. Although Bitcoin’s volatility is known, those who use it as a store of value know it will be resilient over time. Co-founder of the Tezos blockchain Arthur Breitman underlined the importance of Bitcoin in situations where bank accounts might be seized, so supporting its use as a preventive against seizure.
Bitcoin in Different Market Scenarios
Co-founder of crypto data service Messari Dan McArdle said in 2018 that Bitcoin would probably sell off during liquidity crises but spike during sovereign debt or fiat confidence crises. The way Monday’s market performs fits this expectation since Bitcoin sold off in reaction to more general market liquidity problems.
Gold vs. Bitcoin: A Fair Comparison?
One finds it difficult to compare Bitcoin to a time-tested store of value—gold. Gold prices likewise dropped roughly 1% on the same volatile day. Head of research at Galaxy Digital, Alex Thorn contends that it is unfair to compare Bitcoin, still in its early years, against gold, a store of value for thousands of years. Investing in Bitcoin is like assuming a venture-like gamble on its future dependability and expansion possibilities.
Conclusion
The present volatility of Bitcoin does not diminish its long-term value storing ability. Although it might not yet be a flight to quality asset, its scarcity and independence from centralised policies make it a special protection against conventional financial risks. As Bitcoin keeps being embraced and develops, its function as a store of value is probably going to become more clear-cut.
Disclaimer
This is just meant to be information; it is not financial or investment advise. Unexpected changes in market conditions mean that before making any financial decisions, one must carefully study and consult a professional.
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