Introduction to Store of Value
A store of value is an asset that maintains its purchasing power over time, typically possessing four key properties: scarcity, durability, portability, and liquidity. Historically, gold has been the quintessential store of value, while fiat currencies have struggled to maintain their value due to inflation and the expansion of the money supply. However, with the rise of cryptocurrencies, Bitcoin has emerged as a potential store of value, captivating the attention of private investors and now, pension funds.
Key Characteristics of a Store of Value
A store of value should have a limited supply, be able to withstand the test of time without deteriorating, be easily transferable and storable, and possess sufficient liquidity to be easily exchanged for goods or other assets. Bitcoin, with its hard cap of 21 million coins, 24/7 global trading, and strong liquidity, meets several of these benchmarks. Its digital nature ensures it remains secure as long as the network is functioning, making it an attractive option for those seeking a store of value in the digital age.
Pension Funds’ Interest in Bitcoin
Pension funds, bound by strict regulations to protect investors’ money and ensure stable retirement income, have traditionally been wary of volatile or lightly regulated assets. However, the changing economic environment, marked by rising inflation, geopolitical tensions, and dwindling confidence in some fiat currencies, has prompted them to explore alternative investments like Bitcoin. Despite concerns over short-term volatility, inconsistent global regulations, cybersecurity risks, limited historical data, and integration challenges into traditional investment models, pension funds are beginning to see the potential of Bitcoin as a long-term strategy.
Case Study: AMP Super’s Approach to Bitcoin
Australian pension fund AMP Super has taken a pioneering step by allocating to Bitcoin futures as part of its dynamic asset allocation program. Rather than viewing Bitcoin as a speculative bet, AMP Super sees it as a component of a broader strategy to protect purchasing power and hedge against currency weakness. The fund’s research indicates that Bitcoin meets store of value criteria effectively, sometimes even outperforming traditional assets. Their approach involves evaluating Bitcoin based on scarcity, durability, portability, and liquidity, using trading signals, and monitoring blockchain data metrics.
Comparison with Traditional Stores of Value
Bitcoin differs significantly from traditional stores of value like gold in terms of volatility, liquidity, scarcity, and regulatory risk. Understanding these differences is crucial for assessing Bitcoin’s potential role in a diversified portfolio. Bitcoin’s scarcity is enforced by code, unlike gold, which can be mined, and fiat money, which can be expanded politically. Its digital nature allows for worldwide transfers in minutes and 24/7 trading, surpassing gold in portability and liquidity. Both Bitcoin and gold often respond positively to changes in inflation expectations, making them useful for generating real returns.
Crypto Investments Beyond Bitcoin
Beyond Bitcoin, pension funds are exploring other crypto investments, such as converting asset rights into digital tokens, which could streamline investment holding, transfer, and settlement. This approach makes assets programmable, replaces traditional accounts with digital wallets, and leverages blockchain to reduce operating costs. However, technical improvements and broader acceptance are needed to fully realize these benefits. Blockchain has the potential to reduce voting costs and open up new settlement forms, but implementation challenges must be addressed.
Conclusion
Pension funds view Bitcoin as a complement to, rather than a replacement for, assets like gold or inflation-protected bonds. They have found that Bitcoin can behave like a store of value during changes in inflation expectations, and modest allocations can improve overall portfolio performance. As the financial landscape continues to evolve, the consideration of Bitcoin and other cryptocurrencies as stores of value will likely become more prevalent. For more insights into how pension funds are approaching Bitcoin and its potential as a store of value, visit https://cointelegraph.com/news/can-bitcoin-really-be-a-store-of-value-what-pension-funds-are-starting-to-discover?utm_source=rss_feed&utm_medium=rss_category_analysis&utm_campaign=rss_partner_inbound
