1 min read

Storing value

Is crypto money? For the final part in this discussion, today we're looking at crypto's ability to serve as "a store of value." To recap, the four functions of money are:

  1. A medium of exchange
  2. A measure of value
  3. A standard of deferred payment
  4. A store of value

Store of value

If you have money, you need a place to keep it. Whether you choose a bank or under your mattress, the important thing is that the value you set aside is still there when you need it. When you stash cash, your value erodes over time because of inflation. I'm currently making 3.6% in my savings account, but 6% inflation means I'm losing 2.4% of my buying power each year. Dollars are a poor store of value.

Most of the time, you have to choose between liquidity and rate of return. When will you need to access your money? For short term savings (for example if you're saving up to buy a house within the next 5 years), it's okay to lose value year over year. The timeline is short enough that the interest can't compound in your favor (or against you) fast enough to matter.

It's long term investments where rate of return matters most. You can sacrifice liquidity and you can weather high volatility. If you have a long enough outlook, you want to store your value in assets that are effectively guaranteed (through diversification) to appreciate.

By this definition, cryptocurrency is an excellent store of value for the long term, and crypto's proponents generally emphasize this aspect of money more than the other three by far. You may lose terribly at various points in time, but crypto isn't going anywhere on the whole. You can choose the wrong coins, the wrong exchanges, and the wrong security measures, but that doesn't change the fact that crypto is here to stay. If you have value to store, crypto is an important part of your diversified portfolio.


P.S. Just be careful not to overexpose yourself to any one asset. Stocks, real estate, and other traditional asset classes are still a sure bet. You just don't want to have zero exposure to blockchain. Even 1% of your net worth spread across 3-10 coins may be extremely meaningful in the coming years.