Background: Bitcoin is a Store of Value, But Fails the other Two Tests of a Viable Currency
A currency has three aspects: unit of account, means of exchange and store of value. Bitcoin is definitely a store of value. It currently fails the other two tests – but that could change.
A unit of account requires relative price stability. Many fiat currencies fail this test (Venezuela, Zimbabwe etc.) and all cryptocurrencies, except one. As of now, only Tether (USDT – $1.01) is a viable unit of account, as it is tied to the US$ and is also widely traded (more on Tether soon). BTC has moved from $12,350 to almost $18,000 and then backed off almost $3,000 – all in the last week. Too volatile for a unit of account for now.
A medium of exchange requires that the currency be usable on a day-to-day basis. Bitcoin transaction fees have recently soared to an average of $32.51 – and even at 1/10 that value, not useful as a day-to-day medium of exchange. (We’ve written more on this recently – click here). As well, a Bitcoin transaction can take days to confirm, with a recent average confirmation time of a day and a half. OK for buying a townhouse, but not OK for buying dinner.
A store of value requires a belief that the item retain its value over a reasonable time horizon, be exchangeable, and also in some cases be a safe haven from other economic trends. Bitcoin passes all of these tests, and is widely being talked up as a store of value from tech visionaries such as Apple cofounder Steve Wozniak and PayPal cofounder Peter Thiel.