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In 2017-18, the crypto asset market was booming. By the closure of 2017, the market capitalisation stood at 566 Billion USD, up from 17 Billion one year prior. The boom was fuelled largely by the proposition that crypto assets (and their underlying technology called Blockchain) were ready to disrupt the prevailing technologies used in a number of commercial sectors.
To date, this proposition has not succeeded. The crypto asset market deflated early 2018, with many projects going bust. The most famous crypto asset, Bitcoin, devalued by 70%. Crypto projects that survived the 2018 crash mostly fizzled out over the next two years as their blockchain-based solutions proved less practical than the prevailing technologies they sought to replace.
Although Bitcoin initially devalued significantly in 2018, it has slowly climbed back up to record prices (roughly 30,000 NZD by December 2020). It is in part because of a revision in its stated value proposition.
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Bitcoin at present
As of 2020, Bitcoin enthusiasts have all but given up proposing that Bitcoin is a viable alternative to VISA, MasterCard, and PayPal in respect to facilitating the transfer of funds in a typical commercial exchange. This was a proposition earnestly touted by enthusiasts before and during the incredible 2017/18 Bitcoin bull run. A fundamental limitation of Bitcoin means this was never a sane proposition (it can validate no more than 4.6 transactions per second).
Bitcoin is now smartly proposed to be a ‘store-of-value’ or ‘store-of-wealth’. In this respect, Bitcoin has a leg to stand on, and can adequately fulfil this duty. Bitcoin’s limitation on the number of transactions it can validate per second is not an issue for a store-of-value focused commodity.
Why is Bitcoin a sufficient Store of Value?
What makes Bitcoin an adequate store of value is its scarcity and finitude. Many commentators liken Bitcoin to precious metals like gold and silver that have historically fulfilled a store of value role. It is in this way that crypto assets, on the back of Bitcoin, have made the most progress in terms of disrupting incumbents.
Image Source: ©Kalkine Group 2020
In many ways, precious metals are superior to Bitcoin. Gold, for instance, has an inherent real-world value, as it has useful applications in electronics and jewellery. Further, it has been a store-of-value for centuries and elicits a boatload more trust than the ten-year old Bitcoin. Where Bitcoin perhaps beats out gold as a store of value is in its known finitude (only 21 Million Bitcoins will ever exist), ease to transport, and higher liquidity.
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