DNotes as a Store of Value:In the case of money, when you earned or inherited more than what you need to consume or spend immediately, the extra is stored to be retrieved at a later date. That “extras” can be stored as is, or exchanged for another medium, such as gold which has been very popular for the last few decades. Whether it stays as money or exchanged for other assets or investments, when it is finally retrieved and spent it is about buying power. The more productive the vehicle you selected as the store of value, the more buying power you will end up with. The risk of losing your investment should always be a primary consideration. As a general rule, the higher the investment risk, the higher the reward; and the lower the risk the lower the reward.
Using the rule of high risk/ high reward it is a common practice for many investors to allocate a small percentage of their investment portfolio to invest in certain high risk situations. When one made the right pick the overall investment portfolio can significantly out perform other investments. The store of value in this case consists of a basket of various assets designed to produce the highest rate of return with managed risk. For many years, gold has been an excellent choice, generating huge returns. However, for a few years now, since 2011, the price of gold has stabilized.
Could DNotes be the best Store of Value since gold? Only time will tell. DNotes has a comprehensive long term strategic plan to be the best in class since the first day it was created, (2-18-2014). DNotes’ team and its community believe that, by staying true to their mission in building a stable, trustworthy currency with reliable long-term appreciating value, DNotes will have the best chances to be “The Digital Currency of the Future with Lasting Value”. If achievable, DNotes could be a great store of value, perhaps the best since gold.
Gold has been an excellent store of value for over a decade, performing spectacularly well as a hedge against inflation, thereby preserving investors’ purchasing power. Until the 12-year bull-run ended in 2011 at over US$1900 per ounce, down to US$1,267 today, gold has been an outstanding wealth creation investment.
Let us take a closer look. I mentioned in an earlier post that Store of Value is one of the four functions of money. The other three functions are; Unit of Account, Medium of Exchange, and Standard of Deferred Payment.
Money as a store of value is an important component for the modern economy to function efficiently, since everyone accepts money in exchange for goods and services. The money accepted can be spent immediately or stored as cash or banked to be retrieved later to be spent or invested in another asset that may be more productive as a store of value. Finding a relatively secure investment with high returns is a big challenge these days.
Money is not the only asset used to store value to be retrieved, exchange, or transferred at a later time. The other assets commonly used to store value are precious metals like gold and silver. Real estate, collectibles, stock ownership in a company, and other financial instruments such as bonds, and treasury bills are also commonly used to store value. They all have inherent risks and potential for value appreciation. In general, the higher the risks, the higher the returns.
Timing in buying in at the early stage of an upward trend can yield huge appreciation as in the case of gold, which went from under $300 in 2000 to as high as $1,900 per ounce in 2011. Gold has been the best store of value during this period. As such it deserves a closer look.
Massive creation of new money by the Federal Reserve through the policy of Quantitative Easing to pump up the weak economy and to finance the staggering Federal deficit of over $17 trillion with low interest has put great pressure on the US dollar resulting in significant lost of value against the value of gold. If the US dollar continues to lose its value, as many are predicting, will the price of gold continue to increase? Will gold continue to be the best store of value?
To gain a better understanding on the dynamics of devaluation and value appreciation of an asset stored over time when measured against the US dollar, we need to realize that gold is also currency. It is a commodity currency. To be brief, our discussion is limited to the following currencies:
1. Money - a fiat currency:
Money is a legal tender created and controlled by a government. In the case of United States, massive amount of new money can be created based on the decision of political appointee administers (Federal Reserve – Board of Governors) Its supply is relative scarce, controlled through managing money supply. It is durable, portable and transferable. Unlike gold it is fungible and divisible to the extent that it is mutually interchangeable in whole or in part.
As the US government federal deficit and trade deficit continues to grow rapidly, the pressure on the value of the US dollar increases, leading to further lost of confidence in the US dollar resulting in further devaluation. Perhaps the biggest fear is a dramatic increase in interest rate. It will have a crippling effect on the value of the US dollar, various currencies closely aligned with the US dollar. This will be extremely damaging to the world economy. The Federal Reserve may not like to see another bull run in gold for this very reason. http://www.paulcraigroberts.org/2014/01/17/hows-whys-gold-price-manipulation/
2. Gold - a commodity currency:
Gold is more durable than fiat currency. It is definitely scarce and cannot be cost effectively reproduced to increase supply. It is not as portable as money, especially involving cross-border transfer. It is not fungible or easily divisible. It is not a good medium of exchange but has served well as a good store of value.
A dramatic increase in the price of gold could immediately cause very damaging chain reactions. My sense is that the US government has been doing everything possible to prevent this from happening. Consequently, I would conclude that another round of rapid gold price increase is not likely.
Bloomberg.com reported 8-14-2013 that “Damage of Declining Gold Prices Felt Globally” and added “A 12-Year Bull Market Crashes:” It reported that “During a 12-year bull market, gold was promoted as a hedge against inflation, a store of value and a spectacular investment in its own right.”
http://www.bloomberg.com/infographics/2013-08-14/gold-price-decline-felt-around-the-world.html3. DNotes – a digital currency:
Call it property as the IRS would, a clone of Bitcoin, or virtual currency, DNotes is a digital currency meeting all the functions of money, with added advantages and enhancements:
Unit of Account:
Being traded on 5 exchanges at around 1,000 Satoshis or $0.005, a value on DNotes has been established.
Store of Value:
DNotes is the most consisting performer in value appreciation among over 400 crypto currencies.
http://coinmarketcap.com/ From a low price of 41 Satoshis, on March 25, 2014 DNotes has consistently established higher highs and higher lows. It has been delivering a spectacular reliable long term appreciation for almost six months (a long time in the crypto world) without exception. With around 90 million DNotes issued to date, a maximum limit of 500 million DNotes, and a market cap of around $500,000, DNotes long-term stunning performance is likely continue for years to come.
None the less, this should be considered as a high risk investment with no assurances that the same rate of value appreciation is sustainable. It should be treated as a high risk investment with potential high return. Do not invest more that you can afford to lose. It should be limited not to exceed a small percentage of your investment portfolio, depending on your risk appetite.
Once again please participate with your comments and questions.
I like to cover the pros and cons of Bitcoin, and adoption by merchant and consumers next. In an effort to be more objective, I like to invite you to do your research and post your findings and comments. That will make it much more interesting, hopefully more objective and less self-serving.
