What is a store of value?
A store of value is an asset that does not lose its value over time.
Take, for example, gold. Pure gold does not lose its shimmer as time goes by—it retains its gloss and quality. Contrast this with iron that rusts with time and becomes unusable.
Do not confuse a store of value with an income-yielding asset like a bank fixed deposit that gives you returns periodically.
Other examples of stores of value are land, antiques, vintage wine, art, and collectibles(comic books, sneakers, vinyl records, etc.).
There are two defining characteristics of stores of value:
- They are desirable—there is a demand for them.
- They are available in limited quantity—you cannot produce them on demand in large amounts.
If an asset is not desirable, no one would want to have it. If you can produce something en masse, it will not be valuable—at least not as an investment.
The price of a store of value is set by collective belief. As more and more people buy into this belief, the price of the asset increases over time. The limited availability of the asset aids this price increase.
Historically, stores of value have been the sole domain of the affluent(maybe excluding gold). Investing in stores of value is a tedious and prickly affair that requires knowledge, knowing the right people, and having the right connections. Also, most forms of stores of value need significant investment to own them.
How many people do you know who invest in art?
In other words, only the rich could afford to do this.
Bitcoin has upended the exclusivity of the store of value and has made it accessible to all. Anyone with an internet connection can invest in bitcoin. You do not need exclusive access and large sums of money to invest in bitcoin.
When I say bitcoin, I am referring to all forms of cryptocurrencies.
You can love bitcoin or hate it, but you cannot ignore it. Bitcoin has democratized access to store of value.