- Bitcoin and other cryptos could one day serve as a kind of electronic store of value that replaces gold
- To get to that point, the crypto industry would need to overcome the current regulatory hurdles
- Cryptos would eventually rival local currencies as a medium of exchange before taking over as a store of value
The Bank of Singapore in a recent research note has hinted that Bitcoin and the crypto markets at large have the potential to create a new standard for storing value. And in the long run, could replace gold.
Bitcoin Could Replace Gold
For over 4,000 years, the precious metal has been considered a store of value by different tribes across the world. There have been times in history when gold loses all its value and gets temporarily replaced by other assets, including silver, paper money, and spices at different times.
However, after every few years, and when circumstances are right, gold returns as the leading store of value. According to Mansoor Mohi-uddin, the chief economist of the Bank of Singapore, Bitcoin, and other cryptos could be the next asset class to replace traditional safe-haven assets like gold.
The Potential of Bitcoin as a Store of Value
For centuries, gold has thrived as a store of value because of its limited supply. In this regard, Bitcoin is remarkably similar to gold.
The local currencies of countries are not limited in supply. Countries limit the supply of their local currencies to guard against inflation. This is one of the major reasons fiat money has failed to completely replace gold as a store of value.
Because of the finite supply of Bitcoin, investors are increasingly looking towards it acquiring the asset to bolster their portfolios. It is this finitude that makes Bitcoin valuable.
Mansoor Mohi-uddin doubts the crypto market in its entirety has a real chance at replacing fiat currencies. However, the scarcity of Bitcoin gives it a powerful advantage against the current rapid money printing and monetary stimulus model adopted by many countries.
On the Flipside
- Regardless of the growing interest and demand for Bitcoin, there are those who still see the asset as a bubble
- According to the U.K.’s Financial Conduct Authority, people investing in cryptocurrencies at risk of losing all their money
- The warning from the FCA comes amid wild volatility in the cryptocurrency market
The Road to Becoming a Store of Value
Being a relatively new asset class, cryptos have faced a lot of regulatory difficulties and uncertainties. At the time, countries all over the world are either structuring a regulatory framework or modifying their existing policies to best regulate the industry.
According to Mansoor Mohi-uddin, for cryptos to emerge as a store of wealth, the industry has to survive a number of tests to prove their longevity and reliability. He explains that:
First, investors need trustworthy institutions to be able to hold digital currencies securely. Second, liquidity needs to improve significantly to reduce volatility to manageable levels
Critics have always faulted Bitcoin for being too volatile, and rightly so. Mohi-uddin cites the massive price movement of Bitcoin over the last 12 months as one of the things Bitcoin needs to overcome before becoming a store of value capable of replacing gold as a store of value.