Bitcoin’s Volatility and Market Perception

The recent drop in Bitcoin’s price has led to skepticism about its claim to be a “store of value.” Critics have pointed out the cryptocurrency’s volatility, comparing it unfavorably to traditional safe-haven assets. Bloomberg columnist Joe Weisenthal highlighted this view, suggesting that Bitcoin’s recent performance makes it look more like a collection of tech stocks rather than a stable asset.

However, this perspective might be too narrow. It’s essential to distinguish between “store-of-value” assets and “flight-to-quality” assets. According to Andy Baehr, head of product at CoinDesk Indices, a store-of-value asset is judged based on long-term expectations, while a flight-to-quality asset is more about immediate market movements.

The Role of Bitcoin in Times of Market Stress

During severe market downturns—such as the recent 12% drop in the Nikkei index—traditional safe-haven assets like U.S. Treasury bonds often see increased demand. These assets are perceived as stable refuges during market crises. Bitcoin, in contrast, does not yet possess this status as a safe-haven asset.

“Bitcoin is still undeniably volatile and speculative,” Baehr noted. “But it has attributes—such as its scarcity, portability, and detachment from government policies—that could make it a valuable store of value over the long term.”

Long-Term View vs. Short-Term Performance

For investors viewing Bitcoin as a store of value, the focus is not on short-term volatility but rather on its potential as a hedge against long-term economic risks. Bitcoin’s fixed supply, capped at 21 million coins, and its resistance to inflationary pressures make it an appealing alternative to traditional fiat currencies.

Baehr explains, “People who invest in Bitcoin as a store of value are often more concerned with the long-term erosion of currency value rather than day-to-day market fluctuations. The goal is to safeguard against the devaluation of fiat money.”

Bitcoin as a Protection Against Confiscation

Arthur Breitman, co-founder of the Tezos blockchain protocol, adds another dimension to Bitcoin’s role as a store of value. He points out that Bitcoin’s decentralized nature and resistance to confiscation make it a viable option for safeguarding assets in scenarios where traditional financial systems might be compromised.

“Bitcoin is a good store of value if traditional banking systems face crises or seizures,” Breitman said. “Its value is contextual and depends on the circumstances in which it’s used.”

Bitcoin’s Performance During Different Crises

Dan McArdle, co-founder of Messari, offers a historical perspective on Bitcoin’s behavior during various types of crises. He notes that while Bitcoin might sell off during liquidity crises, it has the potential to rise during sovereign debt or fiat confidence crises. The recent market turmoil is an example of the former scenario, where Bitcoin’s price was affected by broader liquidity issues.

In comparison, gold—a traditional store of value—also experienced a minor decline of about 1% on Monday. This highlights that even well-established assets can face volatility.

Bitcoin’s Evolution as a Store of Value

Alex Thorn, head of firmwide research at Galaxy Digital, emphasizes that Bitcoin’s role as a store of value should be viewed in the context of its ongoing development. Compared to gold, which has been a store of value for thousands of years, Bitcoin is still relatively new.

“Bitcoin is in its infancy as a store of value,” Thorn explained. “Its volatility reflects its growing pains and the process of adoption. Investing in Bitcoin is a venture-like bet on its future potential.”

Conclusion

Bitcoin’s journey as a store of value is far from straightforward. While recent market fluctuations and criticisms highlight its volatility, Bitcoin’s long-term promise lies in its unique characteristics, such as its limited supply and independence from traditional financial systems.