Bitcoin as a store of value =

It is hard to imagine that the value of Bitcoin (BTC) was once just one dollar. And yet this was the case in February 2011. Satoshi Nakamoto introduced blockchain technology and Bitcoin as the first cryptocurrency in response to the failing monetary system that is constantly subject to inflation. In Western societies we see that this is rather steady, but if we look at the hyperinflation in countries such as Venezuela, we can start to seriously question fiat money. Not only has the value and popularity of Bitcoin increased enormously in the past year, but Bitcoin is also increasingly becoming a store of value. Why? Discover it here!

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  • View quickly
  • What is Bitcoin?
    • Fiat money
    • Decentralized
    • Scarcity
    • Payment method
  • Intrinsic value
  • Bitcoin as a bubble?
  • New gold?
    • Physical product vs. computer code
    • carrying capacity
  • Stock to flow model
    • What is S2F Model?
    • Bitcoin S2F ratio
    • Valuation
  • Conclusion

What is Bitcoin?

Before we can discuss Bitcoin (BTC), a digital asset in terms of store of value, it is important to know what Bitcoin actually is and what the underlying ideology of Bitcoin is.

Fiat money

We often hear that Bitcoin is a bubble and that it has no value. These statements more often stem from ignorance and the lack of a physical currency such as the dollar or euro. To understand the value, we need to look at the initial purpose of Bitcoin’s arrival.

As an average citizen in the United States in the 1950s, if you had $1 million in savings, it would be worth only $100,000 today. In just a few decades, the value of money has plummeted and as much as 1/3rd of all dollars in circulation have been printed in recent years. Consequence? Fiat money is becoming less and less valuable and purchasing power is changing drastically. In return, Bitcoin was created to counteract this inflation with the aim of creating a stable currency without outside interference, thus Bitcoin works as a peer-to-peer network. It is these government agencies that print money and thus promote (hyper)inflation.

Decentralized

The decentralized nature of Bitcoin makes it a peer-to-peer network where external parties have no influence on the value of this digital asset. Why is that so important? Without interference from financial and intentional parties, the price develops in the market between supply and demand. Many people question Bitcoin because it would have no intrinsic value. They forget that a note of 10 euros has no intrinsic value either, but that we as a society have given it a certain value. This is in contrast to gold, which we will return to shortly.

Scarcity

Scarcity is a concept that always favors the price. Why is the purchasing power of fiat money plummeting? By continuously printing money we create more supply. As a result, the product, bills in this case, becomes less scarce and the value decreases as a result. Bitcoin is capped at a maximum of 21 million, most of which are already in circulation. This scarcity creates FOMO, but also that the value of this asset will increase as more Bitcoin is held. This is a classic example of general economics, the relationship between supply and demand.

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Payment method

We now know the world of crypto as a very diverse environment with an unprecedented number of protocols and crypto coins, each with a different purpose. This market has therefore developed very strongly in the past decade. Satoshi’s goal with Bitcoin was to generate an alternative means of payment. He wanted to turn this digital asset into a stable alternative currency with which everyone could pay collectively. The value of this coin is then determined by the network itself, namely the users.

Last year we are delighted to see that Satoshi’s goals are becoming more and more reality. Institutional organizations are investing in Bitcoin and even mainstream banking systems are including Bitcoin in their agendas for the future. In addition, there are already various products worldwide that you can pay with Bitcoin. An important caveat here is that transaction speeds are still slow, which makes Bitcoin less than ideal as a contemporary payment method.

Intrinsic value

We see that many institutional organizations are buying into Bitcoin, which gives the first crypto coin much more carrying capacity. The price forecasts are therefore favorable for the coming years. However, time will tell whether the price will develop as positively as predicted. But even if Bitcoin were worth $100,000, critics are still scrutinizing its intrinsic value.

Bitcoin as a crypto currency has never been given a certain value in the early years, unlike gold and silver or shares. The current value that Bitcoin currently has is based on trust and the fluctuations of the current market system. Skeptics will therefore always say that Bitcoin is a bubble, but from when is something a bubble?

Bitcoin as a bubble?

Any form of crypto, including Bitcoin, is a bubble when one does not believe in the purpose of the project. Bitcoin aims to become a new means of payment, and it looks like this goal is becoming more and more a reality. Especially now that Tesla has announced that you will soon be able to buy your new car with Bitcoin. But do we really want this if the price fluctuates so much? After all, you don’t want to pay $60,000 now, which might be worth $80,000 in a few months. Is Bitcoin a bubble then?

A project is a bubble when investors are only interested for their own profit. A pump and dump is a good example of how this market can be influenced. Suppose you do not believe in Bitcoin, but you see that the price is rising nicely, so you buy in, with the intention of selling again within a certain time. When this happens on a large scale, a crypto is a bubble that loses value. We see that Bitcoin is gaining more and more support and that more and more investors are determined to hold on to their Bitcoin. No longer with a view to selling it for astronomical amounts in the future, but they see it as a store of value, as the new gold.

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New gold?

To immediately say that Bitcoin is the new gold is a dangerous statement. This is because they are two different things that are difficult to compare. Yet it is often said that Bitcoin is the new gold, especially when we look at the price. Recently, the value of Bitcoin has surpassed the value of gold, which is an important milestone for Bitcoin’s development.

Physical product vs. computer code

Gold has great support because it is a physical product and has served as a valuable and value-retaining product in the past. Bitcoin, on the other hand, is a virtual currency that you purchase and hold in a wallet. This coin you will never see physically and therefore raises more questions because it is an intangible thing.

carrying capacity

The fact that something is intangible makes it more difficult for many people to value something. If we look at the history of money, for example, we see that the first banknotes were based on a representation of gold. From this philosophy, the concept of ‘money’ has continued to develop, which has ensured that, decades later, money is based solely on trust. The confidence that the money we have is a true representation of the value of gold. Now I don’t have to tell you that this hasn’t been the case for years.

Stock to flow model

What is S2F Model?

The Stock to Flow (S2F) is a way to determine the price of a product based on the supply. It is calculated by dividing the amount in reserve by the amount produced annually. This is also referred to as the storage of value goods, as they can maintain the same or even higher value over a longer period of time. A well-known example of this is gold.

It is estimated that about 200,000 tons of gold were mined. This quantity is what they call the stock in the S2F model. Meanwhile, up to 3,000 tons of gold are still extracted from the ground every year. We call this additional quantity the flow.

This ratio indicates a quantity, the amount of a certain asset that comes on the market annually compared to the total supply. The higher this Stock to Flow ratio, the less of this is put on the market in relation to the total supply. The higher the ratio, the more stable an asset is in value.

Scarcity in itself does not determine the price. Based on the above example of gold, we can say that gold is not very exclusive. The Stock to Flow ratio does show how valuable gold is, because the annual production compared to the total supply is relatively scarce and happens on a constant basis.

Bitcoin S2F ratio

When we look at Bitcoin’s Stock to Flow model, we immediately see a lot of interesting information that tells us more about the value that this virtual currency brings.

The red line is the Stock-Flow ratio determined on the ratio between the amount of reserve and the total amount available. At Bitcoin we now know that there are only 21 million Bitcoins and that 18 million of them are already in circulation. The scarcity that Bitcoin entails naturally affects the model below. The use of the different colors gives an indication when the next halving will take place.

IMG

Valuation

The Stock to Flow model is just as important as it gives an indication of valuation. This way we can check whether the value of a product is overestimated. If Bitcoin were currently at $200,000, then Bitcoin’s valuation is not accurate at this point and is overstated. The result is that the current value will also fall and a correction will take place.

What is interesting to see, by the way, is that this model gives an indication for the coming years, up to 2028. When this price does not match the Stock-Flow ratio, as in 2014, we see that the price of Bitcoin recovers to the effective value it represents according to the S2F model. If we look to the future and these predictions come true, it looks like Bitcoin’s future is very bright and anyone who currently has Bitcoin in their wallet will benefit from it. We see that the value is currently in sync with the current value of Bitcoin. Are you a real hodler? Then it could just be that in January 2026 your Bitcoin is worth no less than 1 million dollars. The question is whether this will actually happen, but the S2F model is a very interesting approach.

However, the S2F model is not watertight and there is also criticism of this approach. For example, it would not be useful in the longer term to predict future prices. It does enable us to compare the scarcity of gold and Bitcoin in the same way.

Conclusion

We all want an answer to the question of whether Bitcoin is the new gold, the new store of value that gives us financial security in the future. It is too early to answer that, time will tell how Bitcoin develops and will depend on how many people stubbornly hold on to their Bitcoin. If every hodler is determined to hold on to their Bitcoin for the next 10 years, then it is realistic that having Bitcoin becomes a new store of value, just like gold or silver.

However, we should not forget that the world of crypto is a volatile market and price fluctuations here are faster and more extreme compared to the price of gold. It will further depend on how much attention Bitcoin gets and how much support it manages to gain in the future. The interest shown by institutional organizations is a step in the right direction.

We cannot deny that the cryptocurrency of all coins has done extremely well in the past period and that it seems that the growth for Bitcoin will not stop yet. Do you plan to keep your Bitcoin for years to come? Let us know in the AllesOverCrypto Facebook group. We are curious about your opinion on whether Bitcoin is a new store of value!

 

How do I buy Bitcoin?

Buying Bitcoin on Bitvavo is a piece of cake. Within minutes and for less than a euro you can already be the proud owner of BTC.

  1. Register here for free at Bitvavo
  2. Verify yourself by clicking on your name in the top right corner and then go to ” Verification “.
  3. Transfer money via iDeal. You do this by clicking on ” Deposit Euros “.
  4. Then enter the amount and choose iDeal as payment option so that the money is in your Bitvavo account within a minute. Then click on “Pay”.
  5. If you click on ” Overview ” afterwards, you will see the money.
  6. Find BTC, click on it and then press “Buy”.
  7. Invest the amount you have in mind in BTC.
  8. Congratulations! You bought BTC!
    Don’t forget to save your username and password

 

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