Whenever I post something like this about Bitcoin (BTC-USD) on social media, it triggers a lot of misunderstanding and vitriol.
The comebacks are always the same. “[Traditional finance] bro doesn’t know what he’s talking about.” “Bitcoin is the best performing asset over the last decade.” These same people then talk about Bitcoin and cryptos “pumping.”
Why Bitcoin Isn’t a Store of Value
I’m pretty sure a store of value does not “pump.” The definition of a store of value is something that holds its value predictably across all time frames. The definition of an investment, in contrast, is something that can gain or lose in all time frames. Investments also face unpredictability and risks.
This is my problem with the term “store of value.” If you call Bitcoin a store of value, you are inherently creating a false sense of confidence around its predictability. Bitcoin is an investment that has generated sizeable returns but has also had huge drawdowns in between.
It’s the same reason why gold isn’t a store of value either. Neither is the U.S. dollar. A constantly depreciating asset like the dollar can’t be a store of value. An asset that has had multiple lost decades of performance like gold – or stocks and real estate — can’t be a store of value.
“Store of value” is a marketing term designed to provide a false sense of confidence to people who don’t know any better. It causes people to over-allocate to risky holdings without consideration for their risk tolerance.
I have never once been bearish on Bitcoin. I have argued repeatedly that owning Bitcoin – a small percentage weighted for one’s risk tolerance – makes sense. But to argue it’s a store of value means go all in. It has the implication that it’s safe and that Bitcoin will buy you the exact same amount of food tomorrow as it did yesterday. It doesn’t.
There is no such thing as a store of value. Everything has tail risk. Every position size must be appropriate for an individual investor’s risk. We must be better and more thoughtful about how we describe things. If we don’t, we lose the ability to move forward as a society, and to move forward in our portfolios.
On the date of publication, Michael Gayed did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
