Claim: Bitcoin won't be more than a store of value


#1

Haseeb Qureshi and I were chatting and he made the claim that Bitcoin won’t be more than a store value.

Do you back or challenge this claim? Why?

Please provide your stance and argument below :point_down:


#2

My stance: Challenge claim

My argument:

There’s a few underlying assumptions that author is making in this claim:

  1. Bitcoin has the potential to be a store of value
  2. Bitcoin has the potential to be more than a store of value (i.e. a Medium of exchange)

1) Bitcoin has the potential to be a store of value

Yes, I believe this is true.

Wikipedia’s definition of a store of value is “the function of an asset that can be saved, retrieved and exchanged at a later time, and be predictably useful when retrieved. More generally, a store of value is anything that retains purchasing power into the future.”

Moreover, the definition says: “The most common store of value in modern times has been money, currency, or a commodity like a precious metal or financial capital. The point of any store of value is risk management due to a stable demand for the underlying asset. Money is one of the best stores of value because of its liquidity , that is, it can easily be exchanged for other goods and services.”

If we can agree with this definition, then I would argue that yes, Bitcoin does have the potential to be a store of value because it’s an asset and any asset has the potential to be a store of value.

Note that while Bitcoin has the potential to be a store of value, it is NOT yet a store of value. Bitcoin has wildly fluctuated from $1k to $19k and back to $4k within 24 months, which doesn’t exactly give me confidence that it has retained purchasing power into the future or that serves as a risk management vehicle due to stable demand. An asset’s usefulness as a store of value goes down if there are significant changes in prices. In other words, I don’t believe we can claim (yet) that Bitcoin can/will retain value in any scenario.

2) Bitcoin has the potential to be more than a store of value (i.e. a Medium of exchange, Unit of account)

Yes, I believe this is true.

When Bitcoin first started, it was heavily promoted as an electronic peer-to-peer cash system. i.e. a decentralized payment network. It would be the global electronic currency.

And fundamentally, I still believe this is possible. Bitcoin has all the properties necessary to become a peer-to-peer cash system or more. It’s better than physical cash because it’s electronic and can’t be counterfeited (unless the network is 51% attacked). It can be used for micro-payments (which is not possible with cash). I still remember when Marc Andreessen talked about the potential of Bitcoin in 2014:

I don’t think all these possibilities are out of question just yet. People always overestimate what’s possible in the short run and underestimate what’s possible in the long run. It’s only been 10 years since Bitcoin’s inception. With time, Bitcoin does have the potential to be much more than a store of value.

Conclusion
I think what the author is suggesting (i.e. that Bitcoin could be a store of value and nothing more) is more of a recent narrative I’ve noticed among the crypto community. We started to realize that Bitcoin wasn’t suitable for payments yet because transaction fees are too high and the speed of transacting is too cumbersome and slow. The narrative pushed onto people these days by Bitcoin enthusiasts is that Bitcoin’s originally intended utility as a decentralized payments network is less relevant and instead, Bitcoin is being promoted as a “store of value”.

However, I would argue that for Bitcoin to be a store of value, it first needs to become what it originally promised: a decentralized payments network. Not the other way around. For an asset to be a good store of value (i.e. “store value”), it needs to be intrinsically valuable. For an asset to be intrinsically valuable, it needs to be desirable. To be desirable, it needs to serve some utility. Otherwise, how can someone value the underlying asset? i.e. the value can’t simply be derived from the speculative demand for the asset. The demand has to be real.

Let’s take gold, for example. We know that there will always be demand for gold. We know this because people have used it for centuries as jewelry (i.e. a collectible) and because it serves some industrial use cases. It’s not an empty promise — demand for gold is based on a universal human desire for gold. I pretty much know there will always be someone on the other side who will buy it in any scenario. However, I would argue that the same predictable demand for Bitcoin is not there (yet). Most people can’t (yet) consider Bitcoin an asset they’d use for risk management because it’s uncertain whether there will be stable demand for it into the future. It’s still a high risk investment.

So I’m going to fundamentally challenge the premise of this claim Haseeb makes because until Bitcoin gets used as a global currency or provide some fundamental utility, I don’t believe it can be a good store of value. Therefore, if Bitcoin DOES become a store of value by providing some utility, it means it has already become MORE than a store of value.

Overall, Haseeb and I agree (I think) that Bitcoin has the potential to be a store of value. Where we disagree is whether Bitcoin can be more than a store of value. I believe that not only is this is definitely possible, but also that it is almost necessary for it to be more than a store of value for it to be a store of value :slight_smile:


#3

My stance: Back claim

My argument:

Assumptions in my argument:

  1. Bitcoin can become a store a value.
  2. Bitcoin can’t fulfill the the other use cases of money.

Bitcoin can become a store of value
Historically, things that have become stores of value have had utility (gem stones, live stock, wine, etc.). Bitcoin’s utility isn’t as tangible but it’s there; 1) it’s unseizable and 2) it’s a hedge against inflationary currencies. People spend hundreds of millions (source) to protect their assets from seizure through irrevocable trusts and off-shore banking. If you are holding onto your private keys, no one can take it from you forcibly. RE: it being used as a hedge, you can already see Bitcoin usage increased in countries that have undergone economic turmoil. Venezuela ranked 2nd among countries using LocalBitcoins.com

Bitcoin can’t fulfill the other use cases of money
If Bitcoin was the only cryptocurrency in existence, I can see how it could fulfill all 3 use cases of money (unit of account, medium of exchange, store of value). But currently they are 25+ stablecoins and 25+ privacy coins that are more preferable to pay with because they are less volatile and more private. Bitcoin got its first mainstream adoption through blackmarkets but after blockchain forensics companies have come onto the scene, it’s become preferable to use privacy coins.

Also, moderately high transaction fees are a necessity for Bitcoin. Because it’s PoW based and miners have to spend money to acquire it, there are economic costs associated with processing transactions. It currently costs between 6 cents and 19 cents to process a Bitcoin transaction (source). These won’t go away, especially if block rewards get reduced over time. New coins that aren’t PoW based will have lower transaction fees that will outcompete Bitcoin as a means of payment.

What do you think @zareef1992 @DanielKoff


#4

My Stance: Challenge Claim. I’m with @preethi and I will challenge the claim that Bitcoin won’t be more than a Store of Value.

Argument / Evidence: Depending how you measure it, there is between $3BN and $8BN of daily transaction volume on the Bitcoin base-layer today. In comparison, MasterCard does $11BN. So, we’ve already got a Layer 1 that’s being used for a non-trivial amount of daily transactions.

https://bitcoinexchangeguide.com/bitcoin-8-billion-eyes-mastercard-11-million-in-daily-transfer-wars/

Further, we know that Layer 2 solutions are up and coming, and while the tech is still in early development, there are many signs that Lightning can multiply total thru-put while keeping transactions speedy and low cost. There are even tools are being built to help developers integrate lightning into apps to enable micropayments for popular end-consumer mobile products. One could argue may lead to a tipping point for adoption of Bitcoin as a Medium of Exchange (MoE).

Finally, I’ll lean on borrowed arguments from history - Internet skeptics told us the internet wouldn’t scale to support photos… then videos… then streaming… and yet, we have Netflix today.

Regarding @priyatham’s point about securing the base-layer chain - I agree that a lack of financial incentives for miners resulting from a diminishing block reward might be a very real and potentially dangerous security concern for Bitcoin. However, one could argue that as long as the Bitcoin price continues to more than double every 4 years, then the miner incentives will always persist. Furthermore, if the transactions on Bitcoin do scale by orders of magnitude, and even if a small fraction of those transactions settle to the base-layer, there could be a lot more transactions taking place on the base-layer which miners can generate fees from.

Conclusion:
The Bitcoin network is currently supporting billions in daily transaction volumes with fees of a few cents or less in many cases. The addition of lightning network and other scaling solutions looks promising enough not to rule out the possibility that Bitcoin can scale to provide much greater transaction thruput, instant settlement, and low-cost in the near future. For these reasons, I believe Bitcoin may ultimately prove itself to be a Medium of Exchange with considerable scale and adoption…

To the moon!


#5

these are my concerns:
I agree that a currency has value because people believe it has value. But it is only a currency if both parties in a transaction believe it has value. It isn’t enough that you believe that a bitcoin is worth $4000. Try to sell a bar of gold to my neighbor and you will see he doesn’t want it. Try to sell him a bitcoin and he’ll have no idea what you are talking about. Try to eat at a random restaurant and afterwards try to pay with bitcoin without first confirming they accept bitcoin. If the producers of products and services don’t offer their products or services in bitcoin then bitcoin’s $4000 value is NOT a value as a currency. It is a valuation based on speculation of people buying it just to buy it. Now- if there were a HUGE number of business that accepted bitcoin (and not using a third party that just pays them fed notes and takes bitcoin on their behalf because that doesn’t take the FED out of the loop like we want) if there were a HUGE number of businesses that accepted bitcoin then I would believe that 4000$ valuation.
There isn’t a huge pool of companies pricing their products in bitcoin and so I don’t believe that valuation.
It seems to me that bitcoin has just become another tool of the FED to pump FED notes into the economy. They did and are doing EQ and then they did EBT cards and now they are pumping billions into bitcoin-

you DON’T want products to have the same relative value in bitcoins as they do dollars. The dollar prices are a reflection of manipulation of the dollar.

it isn’t enough to just convert dollars to bitcoin when trying to price stuff in bitcoin because the reason why we are trying to get away from the dollar is that we have learned that a central bank’s manipulation of the currency effects our ability to price products and services effectively. Your house may very well be overpriced or in a dollar bubble, for example. Stuff may artificially be more expensive or even cheaper. Central banking means removing the pricing mechanism of the market (provided by market forces) and losing all sense of relative value until the inevitable decay of said society.

so we shouldn’t see a mirroring of relative value of products. meaning- if the relative prices of two random products in dollars is 1:5, it may very well be that in bitcoin the relative prices of those products is 1:2.
But, you can NOT have real price discovery in bitcoin if exchanges of bitcoin dollar and dollar bitcoin is how people are understanding bitcoin value.

Just like if I ask you how much is a dollar worth- you might give me examples of products you can actually get for 1 dollar.
you should be able to do the same with bitcoin but you CAN’T tell me what a bitcoin is worth in terms of products because people are not pricing in bitcoin. Yes- there will be losers in true price discovery but that is the only way for a currency to become effective.

Just like gold. We all agree that gold is sound money but the powers that be don’t let us use it as a currency. We truly have no idea what the value of gold would be if it were to be used as a currency. It isn’t accurate to just convert the current price that you see in exchanges for gold and assume that is how buyers and sells of products will value gold for their goods. That price on exchanges doesn’t reflect gold as a currency, it only reflects gold as a speculative tool since the powers that be restrict it.

Central banks know money- they said to themselves “oh look, the plebs are trying to make their own money again.”

imagine you are the FED and you see bitcoin as a real threat!!!
how could you attack or hack that system?
I thought about how I would do it… I would buy a shit ton of it with FED notes (and it’s easy to pump because for some reason people exchanging bitcoin think charting methods from the 70s is applicable and, as a result, a lot of bitcoin traders’ behavior can be clumped together). This way holders of bitcoin prefer the quick and easy trade for FED notes for a quick profit rather than waiting for producers of products and services to demand a certain amount of bitcoin for real price discovery. This has stopped bitcoin from becoming a currency and just remains an instrument of speculation on exchanges mainly. It is the producers of products and service that drive the value of money. If they don’t want that money then it has no value to them. You can’t just create a money and say “Hey mr. business, I made my own money so take it for stuff I want…also it is worth $4000…” the 4000 number comes from people buying bitcoin to buy bitcoin hoping to sell bitcoin for more FED notes- there isn’t this huge pool of producers of products/service demanding the coin that is driving that price.
So how bitcoin was supposed to work was that producers of products and services were supposed to see the benefit of adopting bitcoin and start demanding that their customers use bitcoin by pricing their goods and services in bitcoin. This would have forced customers to demand bitcoin to actually buy products priced in bitcoin. This way the buyers of bitcoin are buying it to use it as a currency and the “value” or “price” of bitcoin reflects the demand of bitcoin for real products. This is the only way to have true price discovery.
But that didn’t happen. Keep in mind that when I guy buys a bitcoin for $4000 there is another dude in that trade that values the FED notes more than the bitcoin.

What I mean by relative value is that if you are in a system with a currency that is commonly accepted like the dollar (which we agree is crap) there is the ability to gage the value of different products in terms of other products. Of course we quote prices in dollars but under the hood what we are really saying is ‘this t-shirt is worth 10 cheese burgers or this box of staples is worth 2 bread.’

without the products and service being priced in bitcoin you can’t tell me this ’ t-shirt is worth 10 cheese burgers’. why??? because you really can’t buy those cheese burgers in bitcoin that’s why.

people are buying bitcoin with the expectation that there will be cheese burgers and tshirt and salaries in bitcoin but then you have to ask yourself what is driving the valuation of bitcoin if not the actual trade of bitcoin for stuff. bitcoin is mainly bought to then turn around and sell for FED notes. how do I know that? because there isn’t this huge pool of producers of products and services demanding the bitcoin that drives the demand (and therefore value) of bitcoin.