Store Of Value Vs. Utility: Which Is Truly Necessary For Mainstream Adoption of Bitcoin?

TL;DR

  • It is more critical for bitcoin to serve as a functional store of value than a utility to achieve mainstream adoption
  • Cryptocurrencies like Ethereum acted as a store of value for the ICO market. However, their lack of network effect and liquidity led to severe declines in 2018
  • Utility is an essential part of mainstream crypto adoption. However, a significant reduction in volatility is necessary in order to achieve widespread utility, which makes Bitcoin a less attractive store of value

For years now, the narrative around bitcoin has been that for it to achieve mainstream adoption, it must progress beyond its current status as a store of value and become a utility, or currency for everyday use.

When analyzed in more depth by Crypto analyst Willy Woo, we can see that there are some new oppositions to this argument.

Woo argues that the real utility of Bitcoin is its use as a store of value. The majority of asset value in the world is created from investors storing funds in those assets, not transacting with them – such as gold, oil, stocks, etc.

In the case of Ethereum, its primary value comes from its utility as a store of value for ICO companies to park their newly raised funds in 2017.

As the price of the whole crypto market was going up, it seemed like a smart strategy to raise millions of dollars in ETH, and then continue to store it in ETH with the anticipation that the price would continue even higher. As we saw in 2018, the crypto market bubble burst and the price of ETH crashed by up to 90%. ICO founders’ selling their ETH following of the bearish conditions was a major factor in ETH’s dramatic price decline.

diar_ico_dec_cashout
ICOs cashing out. Source: Diar

Four Signs of Store Of Value

The four signs of an asset that is considered a vast store of value are security, credibility, liquidity, and governance. ETH has shown definite signs of security, credibility and governance, but liquidity (i.e., network effect) is a critical component that it merely hasn’t achieved at the same level as Bitcoin. Organic growth in a Coin should be one of the most sought-after traits for any investor who sees cryptocurrencies as a store of value.

Utility Vs. Volatility

Ultimately, utility is a necessary component of Bitcoin’s mainstream adoption, but one could argue that mainstream utility for Bitcoin will only occur once volatility is at its most minimal.

By that time, many investors will no longer view Bitcoin as a must-have asset when it comes to long-term capital appreciation. Once the promise of 25, 50 or 100% gains within 1-2 years are gone, we may expect to see a lot fewer people flocking to crypto, as it becomes indistinguishable from other mature assets with slow growth rates and minor daily volatility.

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