Stores of value are assets, property, or currency that can retain their value over a longer period. Assets described as stores of value should have characteristics such as longevity, stability, and scarcity. Knowing these characteristics will help you select the assets that will best protect your financial worth and preserve your purchasing power for the future.
What is a store of value?
Reliable savings are important because they preserve the initial value of your hard-earned money over the long term.
Store of value refers to a concept in which assets, property, or currency can retain their value over time and help maintain the value of the property we have today in the future. These assets must be marketable, their value must not decrease over time and with inflation, and they must be stable.
For example, gold is a store of value because:
- There is always a demand to buy it.
- It can be saved.
- Its value remains intact over time.
On the other hand, meat cannot function as a store of value because:
- This product is a consumer product.
- It cannot be kept or stored for long periods.
- Although demand exists and the price may increase, it is not a good store of value due to the lack of long-term storage capacity.
The concept of a store of value is based on risk aversion and seeks assets with the lowest risk. Assets such as stocks or cryptocurrencies can be good stores of value, but they require trading knowledge to use market fluctuations to your advantage.
Store of value functions
To define an asset as a store of value, four key characteristics must be considered. These characteristics ensure that the asset can serve as a safe vehicle to maintain future purchasing power and protect financial assets from inflation or other economic changes. Selecting the right asset for the best store of value requires a thorough analysis and understanding of the market and economic conditions to select assets that have proven useful in preserving value in the past.
1. Longevity
One of the most important characteristics that an asset must possess to be recognized as a store of value is its long useful life. This means that the value of the asset must be maintained over very long periods. Just like gold, which has long been used as a store of value due to its high durability and longevity, it remains one of the most sought-after assets in this field.
2. Stability
Assets must be able to maintain their purchasing power. This means that the price of the asset must not decrease during major market fluctuations or economic changes. To achieve this, gold, when purchased today, should be able to be sold at a similar or higher price in the future, thus preserving the trader’s purchasing power.
3. Scarcity
Assets that serve as a store of value must be scarce or limited in some way. This restriction of supply increases the value of the asset as demand increases and prevents its value from decreasing.
4. Durability
An asset must be able to retain its value over a long period without depreciating or losing value. Assets that depreciate or lose value quickly, such as cars that decrease in value with the introduction of new models, are not suitable for storing value.
Is Bitcoin a good store of value?
Bitcoin was one of the first digital currencies to gain traction in financial markets and is considered the king of digital currencies. There are several aspects to consider when deciding whether buying Bitcoin on a cryptocurrency exchange is a good store of value.
Scarcity: With a limited supply of 21 million units, Bitcoin has scarcity as a key characteristic. This restriction in supply can help preserve value in the face of increased demand.
Difficult to produce: The process of mining Bitcoin, which requires solving complex cryptographic puzzles, is time-consuming and resource-intensive, much like mining gold. The decision to use Bitcoin as a store of value depends on the individual perspective and the risk/return analysis desired by each individual. Every investor has done it.
Portability: Since BTC is digital, it is portable and can be sent anywhere in the world easily and cheaply.
Divisibility: Bitcoin is divided into smaller units called satoshis, allowing for smaller transactions to be made easily.
However, Bitcoin also faces challenges that could call into question its ability as a store of value.
Why is it important to have a store of value?
To maintain and increase the value of assets, a financial plan is very important. This is especially important in countries like Iran, which are facing challenges such as international sanctions and high inflation. Sanctions can lead to limited access to global markets and financial restrictions, while high inflation reduces the credibility of the local currency and weakens purchasing power.
With asset hedging, you can protect your assets from a reduction in value due to inflation. This can include investing in assets that typically keep pace with or exceed inflation, such as gold or real estate.
By increasing the value of your assets, you can also increase your wealth and gain more purchasing power in the future. This can include investing in stocks, bonds, or private companies.
In a situation where annual wage increases rarely exceed the rate of inflation, without an effective strategy to preserve and increase the value of individuals’ assets, there could be a gradual decline in their purchasing power, leading to a decline in their standard of living. Thus, a solid and flexible financial plan that can withstand economic fluctuations is essential for everyone, regardless of their financial situation.
Abstract
The purpose of writing this article was to provide a deeper understanding of the concept of the store of value and its importance in maintaining purchasing power and wealth. Our intention was to report on the impact of different assets on individual and national financial strategies and to show why some assets, such as gold, are considered safe stores of value. Also draw attention to new strategies, such as buying digital currencies, which have the potential to be a store of value but still face challenges.
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