Check out the explanation below to get a better grasp of what the term “store of value” means in the crypto space and beyond.
What Is A Store Of Value?
The term “store of value” refers to any asset, commodity, or currency that can maintain its value over time. This means that it can be saved, retrieved, and exchanged at a later date without deteriorating in value.
What You Need To Know About Stores Of Value
Now that the store of value definition is clear, let’s discuss which assets fall under it. For instance, despite its declining purchasing power due to inflation, fiat money is often considered a primary example of a store of value by economists.
This is largely due to the fact that fiat currencies are highly liquid while the pace of purchasing power changes affecting them is very slow. Yet, calling fiat currency a store of value is controversial as inflation and hyperinflation continuously cause its depreciation.
Precious metals like gold and silver, on the other hand, are viewed as excellent stores of value because of their scarcity and power to withstand long periods of storage without deterioration.
Bitcoin, sometimes referred to as “digital gold,” is also regarded by many as a good store of value. Its scarcity (a limited supply of 21 million BTC), indestructibility, and ability to prevent double-spending are some of the reasons for its high perceived value.
Many crypto enthusiasts also count Ether (ETH) as a decent store of value due to the Ethereum blockchain being used as a platform for decentralized applications and smart contracts. Additionally, Ethereum has a well-established development community and a strong network effect, which add up to ETH’s perceived value.
Note that even though cryptocurrencies, such as Bitcoin and Ether, have seen significant price appreciation over the years, they belong to a highly volatile asset class and can be subject to large price swings. Thus, it’s important to thoroughly understand the associated risks before investing in crypto as a store of value.
