I've been hearing this a lot, but what does it actually mean?
Isn't the most important thing you want from a store of value stability? Ie, that it'll store the value that you put into it? Bitcoin certainly doesn't have that property.
And if that's not the desired property implied by "store of value", what is?
Main source of instability is price manipulation by big players and market inefficiency (not easy enough to arbitrage between exchanges). It would be interesting to see them do the same thing if BTC market cap is in couple of trillions.
For example, if you're on any exchange that lists the total amount of orders in BTC, you can easily catch when the manipulation starts by seeing out of the ordinary sums (triple the amount of usual) for open positions.
Not to mention insane bot activity that is equivalent to a DDOS attack on the exchange.
During the last several hours of IOTA pump, exchanges, even the IOTA tangle were, and still are unstable.
Right, but given that that's true today, what makes BTC a store of value?
Or should I be parsing the phrase to mean "It's not anything today, but in the long term, once the market cap is large enough, it'll be a store of value"?
(I'm not being snarky; I'm legitimately confused by what people mean by the phrase.)
for example, bitcoin is now huge on bithumb, I'd buy it at bitstamp and sell it for 10% more, and repeat. given the slow transaction times, huge fees, large mempool, this is impossible to do.
exchanges also ban you for trying to do arbitrage too, so there's a risk of losing all the funds.
Exchanges don't ban users for exploiting arbitrage, every trade is money to the exchange and it benefits them to enable arbitrage to take place. No idea where you pulled that claim from.
It's also not impossible to trade via bitstamp and bitthumb, sure it may take an hour or so to get your btc from bitstamp to bitthumb but that's not the bottleneck. Once you sell on bitthumb for USD you need to get that USD back to bitstamp. So you have to get it from a Korean Bank to your own account and then to bitstamps European bank account. Best case scenario that route takes 5-10 working days so the BTC network taking an hour or so to confirm is the least if your problems.
Some exchanges offer fee-less withdrawals (like Bitstamp), which makes arbitrage more profitable. I'm pretty sure they'd ban you ASAP if you're withdrawing like crazy (they are paying your fees in BTC).
As for transfer times for BTC not being a problem, 1 hour is a gamble in cryptocurrency world.
They won't ban you for withdrawing. If you withdraw lots then you have purchased lots, the exchange makes a cut each time you buy. BTC fees are minimal and exchanges can craft more efficient transactions too, so they are not going to ban anyone for making too many withdrawals.
The argument I hear by people like Ari Paul of Blocktower Capital, is that many emerging market currencies are already less stable, so you can use bitcoin as a way to escape inflation/government control in those markets.
Stores of value are normally viewed from a long term perspective. For most investors these are viewed as a hedge, even if the underlying store can be used for other purposes (think industrial and ornamental uses for silver, or the enjoyment of a renowned art piece), and so the short term fluctuation is not really an issue.
That said, if the trend of wild volatility were to continue into the long term it would indeed prove to be a poor store of value, but market speculation would indicate as such long before we were to get there (assuming we pick now as the period delta starting point for a "long term").
I'm not - I don't want to buy bitcoin at the moment because I keep waiting for a bit of a dip, I don't want to buy it at a record high. Likewise I don't want to use my bitcoin because it keeps massively "growing" in value.
A stable currency is far more usable to me. Bitcoin is very similar to gold at the moment, in that I'm as likely to use it as I am to carry around bricks of gold in my pocket. For different reasons, sure, but the net result is the same.
We've been seeing record highs for the past 4-6 months though. The likelihood of any dip going below the past 6 month low is pretty low in my opinion. Especially with Lightning network, NASDAQ, other large players getting on board. This may be the last time we see $13K.
And to be clear, I'm not even holding out for a massive dip. I just can't fathom buying it during a clear spike. I want to buy it going down, even if it just goes down from 16k to 10k or 12k, whatever. Normal fluctuations in Bitcoin, really - I just don't want to buy it on the upswing, on principle alone lol.
Unless they're trading, in which case they're selling on perceived ups and downs, and in some cases making a killing - at least for now! The bullish trend with periodic pullbacks means profit for the bold / greedy.
Right, but the Bitcoin evangelists have changed their rhetoric in the last few months, claiming that the current price is justified because Bitcoin is a good store of value, since it's obvious to everyone that the transaction infrastructure is a total dumpster fire at the moment and it's difficult to argue that it's so useful as a currency that $12,000/BTC is reasonable.
Bitcoin will fail to scale, until it doesn't any more. There is far too much economic incentive to scale BTC as a payments network for the assorted parties not to work it out eventually. Could one of the other cryptos overtake BTC? Only if they can overcome BTC's network effects. Right now, BTC has 9 years of history and a huge first mover advantage.
Nothing has that value if you look at a long enough time span. Gold, a traditional store of value, gained >100% and then lost >50% in the course of a decade.
Obviously this is not even noise compared to bitcoin; but my point is that bitcoin has shown to be an exceptional store of value for a long term hold.
Beyond that, I think most people who believe in bitcoin as a long term store of value expect that when it reaches a mature global-level market cap; the swings should be less severe.
You exchange it for whatever currency you desire to make smaller transactions with. Even with slow scaling, it should remain suitable for large transactions.
As a store of value, it has many desirable properties. There is a fixed supply, it can be used anywhere with internet access, it is secure, and it is very inexpensive to hold. Gold, for instance, has a large potential supply, is very difficult to move and secure (e.g. vaults, armed guards), and typically requires you to trust a 3rd party (most hold gold IOUs, not the physical bars).
If you accept that there is a demand for such a store of value, then you must recognize the value of cryptocurrencies. There is also a great deal of potential value as technological solutions to the scaling problem are found, as well as new uses for Nakamoto-style networks.
Exchange how? Your entire argument assumes a functional BTC eco-system (and exchanges with willing counter-parties).
Without usefulness in transactions BTC's only value is whatever is agreed on. And in the absence of a use that is worse than fiat currency - at least that has legal backing rather than just agreeing that BTC has value as a value store.
It's the essence of circular logic: BTC has value since it is a store of value and since it's a store of value it has value...
>If you accept that there is a demand for such a store of value, then you must recognize the value of cryptocurrencies.
I do - just not BTC. Anyone sane will store their value in something that has an actual shot of being grounded in real world transactions. So ETH or whatever is a far better bet.
Gold is tangible and definitely has real world applications. Shares are backed a legal system tying them back to the real world corporation and it's assets.
BTC in the absence of transactions has not tie-back to anything.
Here's a question: if a single bitcoin can be infinitely divided, does the price of a single bitcoin actually mean anything? If I spend $13 on .001 of a Bitcoin, I've, in essence, bought a $13k BTC, have I not, but without any real skin in that figure...
If you buy a cent/penny, you don't own a dollar. You have a particular fraction of that dollar.
If you're speaking of stock dilution, there is a hard-cap on the number of BTC in the wild and a hard-coded granularity (as I understand it) where a satoshi is a hundred millionth of a Bitcoin.
I think dclowd9901 was getting at a different question, which I'll present by analogy:
I incorporate with 1,000,000,000 shares of stock. I sell 20 shares of stock to my good friend for $50. Is my company now worth 2.5 billion dollars?
The answer to this worry is that the value of the good (bitcoins or stock shares, or anything else) is reliable in proportion to the total trading volume, not in proportion to the amount one person typically buys in a single transaction, or even the amount that one eccentric rich guy bought that one time when he was drunk.
Thank you; you explained this much much better than I did.
But your answer, I don't think is sufficient. Just because total trading volume supports the figure doesn't mean that it's valid. If I've invested a small amount of money into the currency (as I suspect most of its buyers have), I've essentially bought into an insane price for little or no "skin". In other words, the price could be high simply because there's no risk to it being that high for most of its investors.
By "total trading volume" I meant to total across buyers and sellers, not to total across history.
Going back to the analogy, suppose I incorporate with 1,000,000,000 shares of stock and sell 20 shares to my friend for $50. He forgets about them, because after all the whole thing was just a joke.
My company has a market capitalization of $2.5 billion, of which I own $2,499,999,950. That paper wealth is worthless, because the daily (or whatever) trading volume of stock in the company is $0, suggesting that if I tried to realize my immense wealth, I wouldn't be able to.
Suppose instead that I sold 500,000 shares to my friends for $50 (total - 10,000 shares to the dollar), and that they sold the shares on to the public, and that now 10,000 shares trade per day at $2.50 per share.
My company has the same market capitalization of $2.5 billion. I own $2,498,750,000 of that (plus $50 of cash!) -- not as much as I had in the first example, but still pretty good. Just as in the first example, the daily trading volume suggests that this wealth is mostly illusory -- the tiny $25k / day market will be quickly overwhelmed if I try to sell $1 million worth of stock, and the trading price will plummet. However, unlike in the first example, my wealth is not entirely illusory. If I try to pick up an extra $5,000, I'll probably have to sell more than 2,000 shares of stock, but the trading volume can support that amount.
As long as there is active trading at a price, that price is real. There is no such concept as trading enough of a bitcoin for the price of "a bitcoin" to be "real"; what matters is whether you're trading enough of the market to move the price single-handedly. If the amount that you want to trade is much less than trading volume, you can more or less rely on the market price. If you want to trade an amount which is noticeable relative to trading volume, you're going to change the market price.
Put another way, if bitcoin trade volume is 100,000 bitcoins per day, you can sell one bitcoin at the market price even if nobody ever buys or sells more than .00001 bitcoin in a single transaction.
Well, that's what it is today. But if BTC has no fundamental value, you might argue the price fluctuations are the price-discovery function of markets screaming "there is no correct price because there is no actual value", or something like that.
All other fiat currencies have some fundamental value. In the past they were backed by gold. Most common today, you have to pay your taxes using them, which means for example everybody who owes US taxes needs USD.
> You might argue the price fluctuations are the price-discovery function of markets screaming "there is no correct price because there is no actual value"
That makes no sense. If the market were really 'screaming there is no actual value', the price would be around $0, not $14K.
It makes sense to me in a divide-by-zero sort of way. I'm not saying the market confidently believes bitcoin has no value. But such wild fluctuations might suggest that even after five years, the price discovery function still has no idea what bitcoin is worth. Now what does that mean? We can only speculate, of course. But to me I wonder if 1) there is no identified fundamental value today and 2) no one knows what the fundamental value will turn out to be
Maybe it's a cultural thing, but I've always been told that gold is a great investment.
The "digital gold" argument doesn't make sense to me at all. Human beings aren't rational spenders. Gold, if nothing else, looks good. I can buy a $10,000 bar of gold and even if its value crashes by 20% tomorrow, I at least have an aesthetic metal that feels nice to touch.
We're absolutely in a bitcoin/cryptocurrency mania. Unfortunately, stating that is much easier than predicting what will happen next.