1. Digital Gold and Store of Value
One reason to own Bitcoin is because Bitcoin could be a good “store of value”.
Gold is considered by many people to be a good “store of value”. Gold has helped people maintain purchasing power over time.
Bitcoin is often referred to as “Digital” Gold.
Some people who believe in Bitcoin use this “Digital” Gold analogy as a way to express one of the reasons why to consider owning Bitcoin.
What does “Digital Gold” mean?
Why would I want to own “Digital” Gold, or even regular Gold for that matter?
Gold has been a good “store of value” for thousands of years.
The phrase “store of value” means Gold has been an asset that if you owned it and held it, then over time, you could usually maintain, or improve, your purchasing power.
A store of value is an asset, commodity, or currency that can be saved, retrieved, and exchanged in the future without deteriorating in value. In other words, to enter this category, the item acquired should, over time, either be worth the same or more.
How do we know Gold has been a “store of value” over time?
Let’s look at some examples…
New Vehicle (Gold)
Imagine the year is 1970 and you have $3,500 USD.
With that $3,500 in 1970 you could:
buy an Average New Vehicle for $3,500 USD, or
buy 100 oz of Gold at $35 USD per oz, or
save the $3,500 USD by placing the cash under your mattress
10 years later, in 1980, you could:
have a 10 year old vehicle, or
buy 8 Average New Vehicles with your 100 oz of Gold, or
keep the $3,500 under the mattress (or buy ½ of an Average New Vehicle)
50 years later, in 2020, you could:
have a 50 year old vehicle, or
buy 5 Average New Vehicles with your 100 oz of Gold, or
keep the $3,500 under the mattress (or buy 1/11 of an Average New Vehicle)
With the Gold you INCREASED your purchasing power over time. In 1970 you could buy 1 Vehicle with the 100 oz Gold. In 2020 you could buy nearly 5 Vehicles with the 100 oz Gold.
With the $USD you LOST significant purchasing power over time. In 1970 you could buy 1 Vehicle with the $3,500 USD. In 2020 you could only buy 10% of a Vehicle with the $3,500 USD.
Gold served as a STORE OF VALUE by maintaining, actually improving, your purchasing power.
The $USD did not serve as a STORE OF VALUE since you lost 90% of your purchasing power in terms of your ability to buy a vehicle with your $USD.
Purple line shows the cost of an Average New Vehicle increased from $3,500 in 1970 to $40,000 in 2020.
Red line shows the cost of an Average New Vehicle decreased from 100 oz Gold in 1970 to 22 Oz Gold in 2020 (using the right side axis, # of oz Gold).
Do you wish you would have “saved” your money in Gold, or as $USD?
Similar examples of how Gold has been a good store of value, and a good protector of purchasing power, can be seen by comparing how much it would cost to buy the Average USA New House, or how much it would cost to support the Median USA Household Income, with $USD vs Gold.
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