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Store of Value

Store of Value

Intermediate

Intermediate

Community Submission – Author: Anonymous

The term store of value is used to describe the property of an asset that is able to avoid depreciation over a long period of time. So to be considered a store of value, an asset should have its value either stable or increase over time – but never decreasing.

A good store of value will enable its owner to sell or exchange it on a future date for a similar or higher value than it was initially bought. Usually, this value is related to the asset’s market price or purchasing power (monetary value). But, in some cases, it may also be related to the asset’s liquidity (i.e., how easy it is to buy and sell it).

Most fiat currencies have a long story of declining purchasing power caused by inflation (mostly due to a rapid increase in the circulating supply of that currency). But despite the effects of inflation, money is considered by many economists as a primary example of a store of value. The reason for that is possibly due to its purchasing power, which changes at a very slow pace. Also, money is likely the most liquid financial instrument we currently have. Still, stating that money is a good store of value is quite controversial. Largely because inflation and hyperinflation are continuously causing depreciation.

Gold, silver, and other precious metals are also considered good as a store of value, mainly due to their scarcity (limited supply). Also due to their ability to be stored for very long periods, without getting physically deteriorated. 

Bitcoin is also considered by some as a good store of value and is quite often described as a “digital gold.” Bitcoin is scarce and indestructible. It’s a digital form of money that can’t be copied or spent twice (double spending). These are some of the main reasons why Bitcoin tends to get more valuable over time. But because of its high volatility and unstable market price, some argue that Bitcoin is not a store of value by definition.