Anyone who’s read about bitcoin or spoken with a crypto enthusiast has probably heard the argument that bitcoin is an ideal “store of value” akin to “digital gold.”
The argument can be illustrated by a simple thought experiment. Imagine the supply of U.S. dollars increased by 100% overnight. The inevitable result would be rampant inflation, eroding the purchasing power of every dollar in circulation. Now, imagine another scenario, where a new policy mandates that the bitcoin supply be doubled, creating an additional 21 million coins.
This latter policy is simply impossible. While the Federal Reserve can manipulate the value of fiat currency to influence the economy and control things like interest rates and inflation, the bitcoin protocol, secured by an immutable blockchain, enforces a strict total supply of 21 million bitcoins. This rule is hard-coded into the bitcoin blockchain and can never be altered or increased. This critical difference, says Neil Bergquist, co-founder and CEO of cryptocurrency exchange Coinme, is what underpins bitcoin as a viable store of value in an era of money printing and inflation concerns.
At the core of Bergquist’s argument, which is the same argument shared by millions of pro-bitcoin enthusiasts, is bitcoin’s scarcity. “There’ll never be more than 21 million bitcoin ever,” he says. “It has a fixed supply, unlike fiat currencies, and no one can change that. No one can come in with a new policy, no one can get elected with a new idea and change that. It’s hard-coded into the bitcoin blockchain. It’s a trustless protocol in that you don’t need to trust it, because it has no choice but to follow the 21 million max supply rule.
“If the U.S. government decides to print more dollars, which it often does, that increases the supply, decreases the value of existing dollars, while increasing the price of finite assets like bitcoin.”
Storing Value in an Era of Inflation
Recent concerns over inflation and the declining value of fiat currencies have reignited interest in alternative stores of value.
The U.S. inflation rate skyrocketed in the middle of the COVID-19 pandemic, reaching 7% in 2021 after hovering between less than 1% to around 2.5% for the previous decade. It’s since receded to around 3.5%, but this number is still historically high and has drastically altered how much a dollar is worth compared to just 10 years ago when the inflation rate was 0.8%.
Bitcoin is often criticized for its volatility, but a zoomed-out view of macroeconomic history reveals that inflation rates are also volatile, and can impose what Neil Bergquist calls “the hidden cost of living in dollars.”
“If you hold dollars in your bank account over a period of rising inflation, then your balance has less purchasing power than if you were to store your value in bitcoin,” he says.
“If you look back, yes, the price goes up and down, but when it goes into a down cycle, into a trough, its low is almost always higher than its previous low,” Bergquist says. “So, if you look at the lowest price of bitcoin in any given year, it’s actually higher than the low of the prior year. It goes up and down, but overall, it’s been going up. So, that’s why you don’t want to make impulsive decisions based on the volatility of the day or the week. That’s why people see it as more as a long-term store of value, and having that long-term perspective is important.”
Institutional Adoption, Access, and Regulation
The prospects for bitcoin’s long-term value proposition could be bolstered by institutional adoption and the growing recognition of bitcoin as a viable, accessible asset class.
“We’re seeing institutional adoption for digital currencies as a store of value,” says Bergquist. “It’s an obvious one with the [exchange-traded funds] launched by BlackRock, Fidelity, and other money managers. This enables sovereign wealth funds and other multibillion-dollar funds to now hold bitcoin as a store of value. This is essentially bitcoin’s IPO moment.”
Creating products and services that bridge traditional finance and digital assets is a crucial component of more widespread adoption. Bergquist pointed to the easy access to cash-to-crypto transactions offered by Coinme’s bitcoin ATM network, which he says operates within 5 miles of nearly 90% of the United States population at over 40,000 retail locations throughout the U.S.
“We’ve solved the access problem,” he says. “There are more Coinme cash locations in the United States than the largest private bank ATM networks.”
One of the challenges Coinme and other exchanges have faced is combating misconceptions that bitcoin doesn’t have actionable use cases and is at risk of cyberattacks and fraud. Bergquist stressed that working with regulators is key to addressing these concerns and promoting transparency.
“Coinme is a licensed and regulated financial institution, just like the other financial institutions you know and trust,” Bergquist says. “We’ve implemented KYC [know your customer] and AML [anti-money laundering] protocols. We have a robust set of controls and transaction monitoring in place, including blockchain monitoring. If you’re trying to send crypto to a wallet that’s deemed too risky, our systems won’t process the transaction. When regulated exchanges and wallets follow these protocols, it makes crypto safer and more likely to be adopted by the public and existing financial institutions.”
While acknowledging the challenges and misconceptions surrounding cryptocurrency, Bergquist paints a picture of an industry that’s maturing, with bitcoin emerging as a viable store of value with bitcoin ATMs and other cash-to-crypto services playing a pivotal role in driving mainstream adoption. As institutional acceptance grows and user experiences continue to improve, bitcoin’s value proposition as a scarce, decentralized, and inflation-resistant asset could gain further traction, solidifying its place as a legitimate alternative to traditional stores of value.