After last week's price crash, I saw some discussions regarding this topic. I have not changed my thesis. I wrote a post to explain my view.
Original Post:
https://bitflate.org/post/2020/03/17/bitcoin-is-a-store-of-value.htmlThis article expresses a personal opinion of the Bitflate developer. It is not investment advice.TL;DR
Long-term, Bitcoin is a Store of Value.
Short-term, Bitcoin is a speculative asset.The coronavirus is spreading across the world. The US economy is feeling its impact. In time of crisis, people are dumping equities for cash. Crypto market had a hard crash last week. Bitcoin dropped more than 50% on March 12, 2020. Bitcoin analyst, Nic Carter, pointed out that it was the 2nd worst percentage drop in recorded history of Bitcoin trading. The worst percentage drop happened in 2013. This Bitcoin’s price drop coincides with the US stock market crash. This correlated price movement challenges Bitcoin’s value proposition as a safe haven Store of Value.
The magnitude of price drop shattered many bitcoin owners. They’re quick to dump and start to question the safe haven SoV thesis. This is understandable. As we are introduced to Bitcoin, the first most enduring thesis we hear is the Store of Value. The stock market drops 5-10% a day during this crisis, while the Bitcoin Store of Value drop 50% in a day. Bitcoin is peculiar. It lives in the fringe and extremities of our psychology. Can a Store of Value be extremely volatile? I think the answer is yes. We consider how we view Bitcoin in the short-term or long-term.
Bitcoin’s short-term price movements are dependent on tradersBitcoin is a global digital currency. People trade it 24/7. There is no circuit break. No authority can intervene to stop its price movements. If we divide Bitcoin owners into hodlers and traders, we can see that traders dominate Bitcoin’s daily movements. Occasionally, hodlers will switch to be traders and vice versa. When Bitcoin price crashes, some hodlers may become anxious and start dumping their bitcoins.
Traders want to make money. They think short-term. They live off price movements. Bitcoin’s short-term price trend is speculative. It’s difficult to understand its daily price actions. With the stock market index, when many stocks can crash, some stocks remain well positioned. For example, this crisis greatly impacts Boeing due to decrease in air travel. But Costco benefits from increase volume. Bitcoin is a solo asset. Therefore, its price movement is very volatile.
Bitcoin’s fundamentals remain strongDuring this price crash, we saw Bitcoin’s price dropped below $4k. But it bounced back and has hold above $5k in the past few days. This likely indicates that long-term investors remain holding and buying.
We see how Bitcoin price can make sudden and drastic changes. This recent price crash is entirely caused by external factors. Bitcoin’s fundamentals change very little. Besides a hashrate drop, we don’t see any other change in how Bitcoin trades and operates. It is still producing blocks every 10 minutes, or maybe a little slower. It is still issuing 12.5 coins for every block for the past 4 years. It is still secure. Bitcoin’s fundamentals remain strong.
Bitcoin is a Store of ValueIf we zoom out the hours, days, and months of the Bitcoin price chart, we can see its long-term price trend remains up. The currently crisis is caused by external factors. The coronavirus is impacting the world’s economies. A sudden panic is causing people to flee asset markets. This has not changed Bitcoin’s value thesis. Long-term, Bitcoin is a Store of Value.
By long-term, I mean the time horizon is 5-10 years (more than 1 halving). Bitcoin’s price movement is affected by traders in the short-term. But in the long-term, hodlers will ultimately decide its price trend.
Long-term, Bitcoin is a Store of Value.
Short-term, Bitcoin is a speculative asset.When to dump BitcoinPeople will move their money around. I follow but usually ignore short-term price movements. I try to stick with my timeline and how I allocate money. During tumultuous times, some bitcoiners advocate HODLism as a strategy. You should always hold. But I don’t think this is a sound strategy. I think a sound investment approach is to compare Bitcoin with other assets. If I see Bitcoin overvalued compared to real estate or equities, I would consider dumping Bitcoin. This is my personal view of how to deal with Bitcoin’s price movements. You should do your own research.
Bitflate is a cryptocurrency with constant inflation of 7% per year. Its goal is to be a Medium of Exchange.But even considering this, what this dip proved to many is that bitcoin isn't all safe of mayor market swings when traditional markets are failing, and that's part of the reason why they could've gotten on crypto to begin with. I personally won't jump ship on bitcoin, but I'd understand if someone who got into it following Satoshi's idea of a safe haven suddenly doesn't want to support it anymore. They got in for the wrong reasons, but here's the catch, they already know the platform, they'll see the price go up over time and will probably get back into it.
People got upset and that's a very human reaction all things considered.
A close definition is a value that does not devalue with inflation. Some examples are gold, real estate. I think gold is the closest analogy. Real estate can be a Store of Value if the land is in high demand, like big metropolitans, agriculture lands. If you're in declining cities, like the US midwest areas, real estate is not a Store of Value. The US equity market can be considered a Store of Value. You've done well if you've invested after WW2. I'm not sure what the future holds for the equity market when we start having negative interest rates. My guess is it'll slowly lose its Store of Value status.
