Store of Value

Store of Value

A Store of Value in cryptocurrency refers to the function of an asset that can be saved, retrieved and exchanged at a later time, and be predictably useful when retrieved. Just like gold or money, it should maintain its value over time. Individuals can purchase a store of value with the expectation that it will retain its value or even grow in value in the future, protecting them against inflation and the volatility of other markets.

Examples of Store of Value

A notable example of a store of value in the cryptographic world is Bitcoin. Bitcoin, as the first and most famous cryptocurrency, is often compared to digital gold because just like the precious metal, there is a limited amount of Bitcoin that can be mined - 21 million to be exact - thereby making it a deflationary asset. This scarcity, combined with growing demand, is one of the factors that has led to an increase in Bitcoin's value over time.

The Importance of Store of Value in Cryptocurrency

Since cryptocurrencies aren't backed by physical assets or a central bank, their value is largely determined by supply and demand dynamics. That makes finding a reliable store of value extremely important in the world of cryptocurrency.

  • It protects against market volatility: Cryptocurrencies can be extremely volatile. Storing wealth in a store of value like Bitcoin can help protect against this volatility.
  • It guards against inflation: Traditional currencies can lose value over time due to inflation. A store of value cryptocurrency, especially those with a capped supply like Bitcoin, can act as a hedge against this inflation.
  • It maintains purchasing power: A strong store of value will maintain its purchasing power over time, allowing you to buy the same amount of goods or services in the future as you could when you invested your funds.

Risks in Store of Value Cryptocurrencies

While using cryptocurrencies as a store of value can offer many benefits, it's not without risks. The biggest risk is that the value of your cryptocurrency may go down, not up. Some factors that can affect the price of cryptocurrencies include changes in regulatory environment, market adoption, technological advancements, and macroeconomic trends.