While Bitcoin has always been notoriously volatile, the current mood seems to be overwhelmingly bullish for the flagship cryptocurrency. A recent report released by Fidelity Digital Assets made a compelling case for holding Bitcoin in the long term. The report opens with the premise that “many investors consider bitcoin to be an aspirational store of value in that it has the properties of a store of value but has yet to be widely accepted as such.”
The subsequent narrative expands on the long-term potential of Bitcoin, explaining how its scarcity will ultimately push the value, offsetting volatility for it to become a reliable store of value akin to gold.
The report only pays lip services to some of the more short-term price drivers such as deglobalization and the scale of monetary stimulus happening across the world.
However, due to the long-range view of the report, it perhaps necessarily overlooks some of the more immediate factors that are currently at play and could have a significant impact on Bitcoin’s price, as well as its potential to act as a store of value in the more immediate future.
A Dollar in Decline
Amid the disastrous impact that the coronavirus pandemic has had on the United States, the US dollar has been on the decline against other major currencies, including the euro and Japanese yen for almost three straight months now. The US dollar index entered its lowest trough in over a year during the first week of August.
In the same three-month timeframe, Bitcoin has broken two key psychological resistance barriers. The price exceeded $10,000 for the first time in nearly a year in June and has recently gone on to hit $12,000.
Examining price trends in that other famous store of value, gold, we can also see a surprising increase in the realized correlation between the Bitcoin and the yellow metal.
Bitcoin/Gold 1 mth correlation reaching new all-time highs, giving momentum to the store-of-value narrative for BTC in these "money printer go brrr" times. pic.twitter.com/hr7l8GPvF8— skew (@skewdotcom) August 10, 2020
It’s well-known that during times of broader economic volatility, investors flock to gold as a way of hedging against losses in other assets. Therefore, does this apparent surge in correlation mean that investors are already using Bitcoin to provide the same features as gold in their portfolio, as a stable store of value?
Industry experts appear to have conflicting views on this.
Speaking to industry publication Cointelegraph, Antoni Trenchev, CEO of crypto banking app Nexo, stated his belief that Bitcoin is already used as a store of value. “The very early narrative was that Bitcoin was going to be a revolutionary currency and p2p payment system,” he noted.
“I think that this has failed to materialize in any way. Bitcoin has the functionalities of a currency, but it’s used more as a store of value and transition of value, especially in larger quantities.”
However, financial commentator Peter Schiff stated in a recent podcast interview with What Bitcoin Did that he sees things differently. “I buy gold as a way to store my wealth, as a conservative place to keep liquidity, as opposed to keeping it in dollars or some other fiat currency,” he told host Peter McCormack.” I do think that when people are buying Bitcoin, they’re really not looking for that.”
However, Schiff is a well-documented gold bug and vocal critic of Bitcoin, so it’s perhaps unsurprising he takes this view.
Plenty of Value to Come
Others from within the cryptocurrency community still have faith that Bitcoin will realize its true utility as a store of value and eventually take its place with gold as a hedging asset.
George Georgiev, Editor-in-Chief at cryptocurrency news and analysis publication CryptoPotato, told me via email that he sees finite supply as a key factor here. “Since there are only so many bitcoins that will ever hit the market, if the demand for them remains the same or increases, its fiat-denominated value will only increase,” he pointed out.
“Moreover, Bitcoin is not inflationary, meaning that at some point, as the total market grows and becomes less volatile, institutions will start using it as a hedge against inflation. That’s also a healthy argument for the store of value narrative.”
However, Georgiev is adamant that Bitcoin has yet to peak as a store of value. “While there are reports indicating that this is already happening,” he wrote, “I believe large-scale investors are still extremely cautious, allocating fractions of their portfolio in BTC just because it’s currently very unpredictable and volatile.”
Statistician and LVL advisor Willy Woo appears to take a similar line to Georgiev, predicting that it will take another cycle for Bitcoin to become a true rival to gold.
“I think this cycle BTC gets to prove itself as a legit macro asset bucket for traditonal [sic] investors, while the cycle after this it overtakes gold to be the significant digital SoV for a digital age,” Woo stated as part of a recent series of tweets. “Expecting sovereign wealth funds to deploy this cycle and next.”
A Journey – Not a Destination
Most commentary seems to agree that Bitcoin’s utility as a store of wealth will increase exponentially over time, as a function of its increasing scarcity. However, the conditions imposed by the coronavirus pandemic have created a perfect storm. The current trajectory appears to indicate there’s potential for Bitcoin to enter a new bull run that could see it exceeding previous all-time highs.
With investors looking for a safe haven from the declining dollar and a precarious stock market, Bitcoin’s utility as a store of value is undoubtedly set to gain traction. However, it seems likely that this will be a journey rather than a destination.