Bitcoin has been called ‘Magic Internet Money,’ but its actual status appears to fluctuate about as much as its price. Everyone knows it’s a cryptocurrency. Some believe it has security-like characteristics. Others promote its gold-like properties of being a stable store of value and safe haven as many investors focus on the likelihood of a recession in 2020. But the currency's massive price swings and other factors are why some experts doubt that Bitcoin will ever rise to the status of "digital gold," an aspiration held by many crypto investors, according to a story in Bloomberg.
Bitcoin's price soared in 2017, then crashed at the end of 2018, then more than tripled by summer of 2019 before falling more than a third off its annual high in fall 2019 amid criticism about transparency, speculation and other issues.
The debate about Bitcoin's status is far from closed. Billionaire investor Michael Novogratz as well as Cameron and Tyler Winklevoss, also known more simply as the Winklevoss twins, are huge supporters of Bitcoin’s potential to ultimately become a stable store of value similar to gold.
- Bitcoin’s status is a subject of heated debated.
- Many advocates tout its gold-like characteristics.
- Sceptics argue Bitcoin is far too volatile to be a store of value.
- Other critics say it is untested as a safe haven asset.
What it Means for Investors
To be sure, Bitcoin is losing its steam as the premier cryptocurrency as a medium of exchange. Growth in payment volume has slowed to about 3% this year, down from 15% in 2018, according to transaction processor CoinGate, per Bloomberg. Bitcoin accounted for around 98% of total crypto payments in 2018 and only 90% now, losing market share to other cryptocurrencies, such as Ether and Litecoin. These trends make it appear that Bitcoin is losing its way.
But the waning of Bitcoin’s medium-of-exchange function just might mean that it has already become a good store of value, according to some experts. That's the opinion of Travis Kling, who runs crypto hedge-fund Ikigai Asset Management in Los Angeles. “It’s too good a store of value to be a good value of exchange,” he said. “If the expectation is the price is going to increase meaningfully, you don’t want to pay out all of your Bitcoins for everyday use.”
Bitcoin skeptics, though, argue that the world’s largest cryptocurrency is far too volatile, and that the digital coin is far from being some beacon of stability. “Bitcoin is not really a good store of value due to its high volatility,” Markus Brunnermeier, a professor of economics at Princeton University, told Bloomberg. “It might be a good medium of exchange for specific transactions,” he added.
These arguments suggest that Bitcoin's true status is largely untested as a safe haven like gold. “While gold rallies in recession, it is only because gold has established itself as a reserve asset, a hedge, and a stable store of value,” said John Griffin, professor of finance at the University of Texas at Austin. The next global downturn may settle the debate about Bitcoin.