Fourteen years after its inception, Bitcoin is gaining recognition as a store of value even among institutional players. Is it now ready to evolve into a medium of exchange?
Over the years, the increasing adoption of Bitcoin has sparked a debate on the effectiveness of the use cases it satisfies through its technology. In addition to its role as a store of value, Bitcoin can also be employed as a medium of exchange. These aspects represent two of the three functions of money.
Bitcoin as a store of value
In recent years, Bitcoin has established itself as a potential store of value due to its scarcity and durability.
A store of value is an asset, currency, or commodity capable of maintaining its value over time.
Unlike traditional currencies, subject to inflation and manipulation by central banks, Bitcoin is a finite asset: the supply of bitcoin is limited to 21 million.
Scarcity fuels the price fluctuation of Bitcoin as it solely depends on market demand and supply. In the Bitcoin protocol, an increase in demand does not lead to an increase in supply, unlike fiat currencies where central banks adjust the money supply based on demand to maintain currency stability.
Over the years, the term “hodling” has become common among Bitcoin enthusiasts who firmly believe in its potential as a store of value. The expression signifies the concept of saving one’s bitcoin and not selling them.
We can liken this action to the practice of holding precious metals like gold for the long term, with no intention of selling. Not surprisingly, Bitcoin is often referred to as “digital gold.”
Today, statistics reveal a growing trend of long-term investment in Bitcoin. According to Glassnode data, over 70% of the bitcoins in the market have remained unmoved for a year or more. This data highlights the low interest of long-term holders in selling their bitcoin.
The perception of Bitcoin as a store of value is affirmed by the growing trend of institutional actors acquiring, accumulating, and holding bitcoin in their corporate or state balance sheets.
Several companies, including MicroStrategy and Tesla, have chosen to adopt Bitcoin as part of their corporate reserves. Notably, since El Salvador adopted bitcoin as legal tender, it has begun accumulating it in the national reserves.
Historically, as indicated by the following chart, the trajectory of a currency goes through various phases: one of the early stages is that of a store of value, without which a currency would hardly be effectively adopted and become a medium of exchange. After all, what would one exchange if money were not able to preserve its value over time?
The early instances of institutional actors expressing interest in incorporating Bitcoin into their investment portfolios indicate the growing market trend to acknowledge that the technology pioneered by Satoshi Nakamoto is proving to be an effective store of value. The real question is: is it already poised to be used as a medium of exchange?
Bitcoin as a medium of exchange
There are already tangible examples of the adoption of Bitcoin as a medium of exchange. Worldwide, communities and even entire countries have embraced Bitcoin payments for the buying and selling of goods and services.
Despite the risk associated with its volatility, which makes it less appealing compared to more stable currencies like the dollar, there has been a growing interest among businesses in recent years to consider and accept this new method of payment.
Bitcoin Beach in El Salvador is the birthplace of the idea behind the Ley Bitcoin enacted by President Nayib Bukele. Here, Bitcoin is considered a tool for daily transactions.
Another example of a circular economy in Bitcoin is found in Guatemala. On the shores of Lake Atitlán, in the city of Panajachel, the community known as Bitcoin Lake has become a reference point for enthusiasts. In Guatemala, credit card fees are very high, which fosters local interest in Bitcoin.
Similarly, in Costa Rica, in the Uvita, Dominical, and Ojochal areas, the Bitcoin Jungle initiative is promoting the use of Bitcoin among local businesses. In this locality, one can even find a local market with numerous merchants accepting Bitcoin.
In Perù, there is a local community that utilizes Bitcoin in a genuine circular economy, as highlighted in this testimony by Joseph Hall, a journalist for Cointelegraph:
Even in Africa, thanks to the support of the Bitcoin Ekasi community, the use of Bitcoin is spreading in some villages.
In addition to various local communities worldwide, there are now several online services that accept Bitcoin payments, ranging from electronics to clothing, and extending to the travel and hospitality sectors.
Some services that accept Bitcoin:
- Travel and hotels: Travala and CheapAir
- Precious metals: JM Bullion, Bitgild, and European Mint
- Vouchers for e–commerce and physical stores: Bitrefill, The Bitcoin Company, and Coincards
- Clothing and Bitcoin–themed gadgets: Satsmobi.com, Fomo 21, and Lightning Store
- Furniture: Mondo Convenienza
- Luxury watches: BitDials
- Luxury cars and motorcycles: Bitcars
- VPN services: ProtonVPN, Mullvad, NordVPN, ExpressVPN, IVPN, and Surfshark
- Domain registration and web hosting: Hostinger and Namecheap
The dual nature of Bitcoin
Bitcoin’s journey from a store of value to a payment method indicates its evolution as a monetary asset.
The two narratives are not mutually exclusive; instead, they coexist, contributing to Bitcoin’s resilience and adaptability in its continuous expansion.
Both activities are important: both ‘hodling’ and spending one’s Bitcoin are actions that help the network, each in its own way.
What is certain is that Bitcoin continues to function seamlessly as both a store of value and a method of payment for everyday transactions.
