Discover why Bitcoin is the best store of value for wealth preservation in today’s digital age.
When compared to other asset classes that have historically been used by people looking to protect their wealth, Bitcoin is the best store of value.
Evolutionary psychologists say modern humans won by preserving wealth. Nicholas Szabo’s “Shelling Out: The Origins of Money” has a fascinating story. When Homo sapiens replaced Homo neanderthalensis in Europe 35,000 years ago, population exploded. H. sapiens, the newcomers, had similar brains, weaker bones, and smaller muscles than Neanderthals, making it hard to explain. Collectibles may have transferred wealth. Humans loved shells. No Neanderthals.
Hence, wealth preservation underpins civilization. Wealth preservation technologies have evolved with technology. All wealth preservation technologies store value. Handmade jewelry came first. To demonstrate why gold, bonds, real estate, and shares underperform and how bitcoin may help us save and prepare for the future, I will compare bitcoin to them. I focus on ETFs for long-term stock savings.
What’s a good value store? – According to Vijay Boyapati, good repositories of value outperform others due to their distinct qualities. A good store of value has durability, mobility, fungibility, divisibility, and notably scarcity. Jewelry is scarce, but it’s easily destroyed, not divisible, and not fungible. Gold performs better. Gold has been the best wealth preservation device for 5,000 years, replacing jewelry. Since 2009, bitcoin has disrupted gold. Digitization optimizes most value-storing functions. Bitcoin, a digital currency, beats gold in the digital age.
Gold vs. Bitcoin
- Durability: Boyapati says, “Gold is the indisputable king of durability.” The majority of gold mined remains. Database is Bitcoin. Thus, bitcoin’s issuer outlasts bitcoin. If its network survives, bitcoin, with no issuing authority, is durable. Unknown durability. Despite years of attacks and nation-state attempts to control Bitcoin, the network has shown remarkable resilience. It has nearly 99.99% uptime.
- Portability: Communications make Bitcoin more portable than gold. Digitalization has devalued gold. Gold is unmailable. Online gold isn’t portable. For decades, gold digitization hampered our monetary system. Digitisation muddled national currencies’ gold backing. Gold’s weight complicates international shipping. Global trade is down. We use fiat money because gold is immobile. Bitcoin solves this problem.
- Divisibility: Bitcoin is digital, making it more divisible than gold. Information may be separated and recombined practically infinitely for free. 100,000,000 satoshis make a bitcoin. Gold divides poorly. It takes specific instruments and risks losing gold.
- Fungibility: Gold melts completely. Bitcoin fungibility is hard. Bitcoin is objective information. Bitcoin transactions are transparent, so governments can restrict criminal use. If bitcoin isn’t fungible, each unit loses its medium-of-exchange value. Bitcoin’s price can drop but not its value. Gold’s fungibility is better than bitcoin’s, but its portability prevents exchange and storage.
- Scarcity: 1.5% gold inflation. Unlimited. Gold may be abundant in space. Gold’s volatility. Gold mining increases with prices. Metals can dilute gold. Online gold in exchange-traded commodities or other financial products is hard to track and artificially boosts supply, depressing prices. 21,000,000 bitcoins only. It deflates. Bitcoin’s 1.75% annual inflation will fall. Four-year protocol halves Bitcoin mining payouts. Bitcoin inflation stops in 10 years. Bitcoin mining stops in 2140, ending inflation.
- Auditability: Not unique for a store of wealth, but crucial for a fair and transparent financial system. Bitcoin can hear. Gold and dollars’ quantities are unknown. Sam Abbassi calls Bitcoin the first globally auditable asset. Rehypothecation risk is avoided. This greatly reduces financial system risk. Financial institutions can prove reserves with their Bitcoin address or transaction history.
Bonds vs. Bitcoin
Benjamin Graham, a British-born American economist, educator, and investor, wrote “The Intelligent Investor” in 1949. He felt a balanced portfolio should have 60% equities and 40% bonds to safeguard investors from stock market risk.
I believe bonds, especially government bonds, have lost their hedge value. Bond rates cannot match monetary inflation, putting our monetary system at danger. Because many governments that underpin our banking system are financially unstable. Because of their ability to tax and, more critically, generate money to pay down debt, governments with healthy balance sheets had essentially no implicit danger of default. Greg Foss called creating money a “credit boogie man,” yet bond allocation made sense before.
Governments spend more. M2, a broad dollar stock metric, surged from $15.4 trillion in 2020 to $21.18 trillion in December 2021, according to the Fed. 37.53% of the dollar supply rose $5.78 trillion. Dollar monetary inflation has averaged above 10% for three years. Treasury bonds pay less.
Today’s investment return should be positive to offset risk and opportunity cost. Inflation guarantees bond losses. Possible systemic failure. The global financial system is fundamentally damaged, making bonds dangerous.
Market credit risky. In recent decades, central banks have allowed nation-states to accumulate massive debts. Venezuela defaulted. Countries may default. After defaulting, they can print money to repay. Devaluing the currency would induce inflation and reduce bond demand due to low yields.
Bonds have drawn investors under “risk off” conditions for 50 years. As central banks flooded the market in March 2020, the 60/40 portfolio crumbled. Stabilizing bonds boosts bitcoin demand.
Graham believed in preserving capital first, then growing it. Bitcoin allows self-sovereign, credit-risk-free wealth storage.
Bitcoin vs. property
Due to severe monetary inflation in recent decades, conserving money is not enough to preserve its worth. So, many people invest a large percentage of their wealth in real estate, a popular store of value. Real estate competes with bitcoin. Bitcoin stores value well because it is finite, portable, divisible, durable, fungible, censorship-resistant, and noncustodial. Bitcoin is harder to seize, rarer, and more liquid. It can be sent worldwide at light speed for nearly nothing. In times of crisis, real estate is easy to confiscate and difficult to dispose, as shown in Ukraine, where many turned to bitcoin to preserve their wealth, accept transfers and gifts, and meet their daily requirements.
In an interview, Michael Saylor discussed real estate’s drawbacks as a store of value. According to Saylor, rent, renovations, property management, and other significant costs make real estate maintenance difficult. Commercial real estate is capital-intensive and boring to most individuals. Second-tier investments like REITs have also failed to hold the asset.
Bitcoin may replace tangible property as a store of value as it gains popularity. So, physical property may lose its store of value premium and fall to its utility value. Due to its early adoption cycle, bitcoin will outperform real estate in the future. We may also see lower real estate investment returns. House prices have nearly 70 times since 1971. As Dylan LeClair notes in his piece, “The End of the Long-Term Debt Cycle And The Growth Of Bitcoin,” governments tax citizens during times like these. Land is easily taxed and hard to relocate. Bitcoin is untaxable. It resists confiscation and censorship across jurisdictions.
Bitcoin vs. ETFs
Passive index investing created ETFs (ETFs). Jack Bogle founded the first index fund, Vanguard 500, in 1976. S&P 500-tracking. ETFs oversee $10 trillion. Bogle’s rule: Aggressive stock picking fails. In interviews, he said fund managers have a 3% lifetime chance of outperforming the market.
Since most investors could not beat the market, he reduced investing costs and provided tools to save and participate in economic growth. Index funds trade less and return more tax-efficiently. Bitcoin beats ETFs. ETFs must cover one index, industry, or location. Bitcoin buys labor. Bitcoin “super-ETF.”
Bitcoin’s potential should be known. Decentralized bitcoin (bitcoin). Peer-to-peer networks store and exchange value. It underpins Lightning Network. Bitcoin will dominate transactions. Quantify global productivity. The more productive we are, the more value we create, the more transactions are conducted, the more value must be kept, the higher the demand for bitcoin, the higher the price. Instead of an ETF to track indices, I could boost productivity with bitcoin. Bitcoin beat ETFs.
The largest and oldest ETF is SPDR S&P 500 ETF Trust. S&P 500-tracking. Annual performance was 16.68%. Poor considering investors only held.
Bitcoin 158,382.362%. 200%+ yearly. Performance is not predictive. Bitcoin differs. P/E ratios increase stock risk. No bitcoin. Bitcoin’s liquidity, size, and global dominance reduce risk as its price rises. The Lindy effect sustains Bitcoin.
Bitcoin beats ETFs. Bitcoin outshines ETFs. It’s cheaper. Others own ETFs. ETFs are unsellable. Bitcoin is unaffected by bank closures, unlike ETFs. Bitcoin transfers instantly online, making confiscation difficult.
In the end
Digital wealth preservation is better with Bitcoin. It is scarce, digitally native, and transportable. The world’s most powerful computer network’s digital currency. The Bitcoin network could theoretically hold all $530 trillion in wealth, making it the most efficient way humans have devised to store value. If you store bitcoin for decades, your wealth will be protected and likely grown during this early monetization process.
I’ll end with Jack Bogle, who shaped me. According to Eric Balchunas, Bogle’s lifework is addition by subtraction: eliminating management fees, turnover, brokers, human emotion, and bias. Bitcoin suits his investment philosophy. Bogle favored “common sense” investing. “Most of all, you have to be disciplined and save, even if you loathe our existing financial system,” he told Reuters in 2012. And if you don’t save, you’ll have nothing.”
Bitcoin is like Bogle’s passive mutual funds: a low-risk, long-term savings vehicle for investors’ disposable income. John Bogle advises us to “keep the course” despite bitcoin’s volatility. Stack sats. You’ll thank yourself.