What Gold’s History Teaches Us About Bitcoin As A Store Of Value

Matt Hougan argues bitcoin is following gold in terms of volatility:

This volatility is what you’d expect from a new store of value. Insisting that a new store of value emerge fully formed in its long-term steady state is asking too much. In fact, you would expect two things from any store of value as it established itself:

    1. A Rapidly Appreciating Price At First, Slowing Over Time: The price of a new store of value would likely start out very low, as few would believe in it. As it became established, prices would rise exponentially. Over time, this price appreciation would slow as it reached a steady state.
    2.  High-But-Declining Volatility: Similarly, early volatility would be extreme, as its long-term sustainability would be in question. But over time, that volatility would tail off as the asset became more established.

That’s exactly what we saw in gold, and Bitcoin is following the same path. Bitcoin’s price rose exponentially in its earliest days, and that growth is slowing over time. Volatility—while still high—has declined markedly, and will likely fall further as derivatives and market-making activity increase.

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Bitcoin Volatility Is Declining Over Time

Thus, it is not as bad as bitcoin bashers make us believe:

Look out 10 years: As the digital world becomes an ever-larger part of our lives, and the millennial generation moves into its prime age range for saving, it’s not hard to imagine a world where Bitcoin holds 1/10th the value of gold. That would imply a 500% price increase, from current levels of around $8,000 to about $40,000.

Could Bitcoin’s value be equal to gold? That would suggest a shade under $400,000.

Could it be higher, because Bitcoin has more potential utility?

Don’t listen to the folks who say Bitcoin will never be a store of value. It’s actually right on track, following in the footsteps of every other significant store of value that’s come into the world.  There’s no guarantee it will stay on that path, but if it does, the opportunities are significant.



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