Crypto Market Commentary 

4 March 2019

Doc's Daily Commentary

Checkmate's Corner

Has bitcoin proven its role as a store of value?

In this article, I will explore whether Bitcoin, through its 10-year life, has shown characteristics of a store of value in reference to the current global reserve currency United States Dollar and the default historical store of value, Gold. I explore in brief, why gold has been the most effective store of value through history, and the important characteristics of a valid store of value. Finally, I present a study assessing the comparative performance of gold and Bitcoin as a hedge against USD inflation since 2013 to make an assessment as of Bitcoin’s role as a store of value.


This article is the first of two parts.


  • Part 1 will discuss the basis of what makes a store of value and how Gold has fulfilled this role


  • Part 2 will establish the fundamental basis for Bitcoin as a store of value and compare the relative performance of Bitcoin, Gold and the DOW index from 2010 to Jan 2019.


Part 2

This is part 2 of the article assessing whether Bitcoin fulfills the role of a store of value. We will discuss the actual performance of Gold and the DOW index through History and then follow up with the comparative performance of Bitcoin over its 10-year lifespan.

Gold’s Performance as an SoV 1929 to 2018

Now that we have established that gold has proven to meet the characteristics required for a valid store of value, the next question is how has it performed against the global reserve currency the USD. Given the long history of price data for both US inflation and gold, the available data allows for a long term perspective.

For this study, I have pulled data on the monthly USD inflation rate from 1914 to 2019 and the yearly gold prices from 1929 to 2019 to compare the average growth in gold’s value against inflation. As a comparison, I have included the DOW Industry index to compare the performance of the more volatile stock market. These datasets vary slightly from source to source however are generally consistent enough for this study on long term averages. Later in the piece, I will pull more granular price data for a comparison against Bitcoin which has a relatively shorter history.

The charts below present the following:

  • USD inflation rate and its average across time (solid green) – It can be seen that the actual inflation rate varies wildly exceeding +5% to 10% usually in response to recession events. The long term average from 1982 to today is between 3% and 4% and can be considered the modern day baseline.

  • The average Year on Year growth of the Gold price (solid yellow) is typically higher than the USD inflation rate (solid green). This means that the value gained by holding gold generally exceeds that of holding dollars over the long term – thus a relative store of value. It is also important to note the response of gold to key fundamental events such as the 1934 Gold Reserve Act (“fixed” gold/USD rate maintained by the government) and after 1973-74 ending of the Gold Standard at which point the free market value of gold skyrockets and the USD is significantly devalued. Both events constrained supply relative to demand.

  • The average Year on Year growth of the DOW industrial average (solid blue) has continued to gain momentum since the 1929 Great Depression and is now exceeding the growth rate of gold. This underpins the trend of equities markets being the dominant growth asset class in recent decades. Note also how peaks in the DOW growth correlate with troughs in the gold market suggesting the cyclical risk on / risk off approach in response to significant financial downturns. Arguably, the DOW has shown to be as good of a long term store of value as gold.

A final observation from these charts is the general slow down in growth (flattening of the curves) over time with yearly gains above 7.5% becoming a ceiling. This supports the growing concern that the required 8% to 10% growth required by many pension funds around the globe for self-sustainability, may not be available in many asset classes into the future.

Bitcoin stock-to-flow ratio

The available dataset for Bitcoin is substantially shorter than that for gold and equities markets. Price data for Bitcoin has been obtained across a number of exchanges with the first data point of $0.064 in September 2010. Given the limited dataset and significantly faster speed at which the cryptocurrency market moves, comparisons for this portion of the study are reduced to a monthly average rather than a year on year average.

The stock-to-flow ratio for Bitcoin can be estimated by considering the Bitcoin supply schedule and the average hash rate over time. Whilst the Bitcoin block time is widely quoted as one block per 10 minutes, this time interval is actually a function of mining performance across the network and fluctuated significantly until around 2015 at which point it approached an average steady state of one block per 9.651mins. This value has been adopted to project the Bitcoin inflation rate forwards and estimate the circulating supply against time, however, this requires continued revision as the data evolves.

Following the Bitcoin halving schedule and using our estimated 9.651min block time, we can project the circulating Bitcoin supply and inflation into the future. This is a remarkable monetary policy which cannot be replicated in the traditional financial system by any asset class and one of Bitcoin’s fundamental value propositions. This analysis does not assume any lost coins and considers the full 21 million supply of Bitcoin.

For comparison with gold, it is assumed that ‘peak gold’ occurs in 2025 after which point the inflation rate reduces by 0.06% per four years (this puts zero gold production in the year 2100). There is little rigor to this estimate and it will be the subject of further study. The gold inflation rate considers only the gold available for investment as a store of value (1.199%) and an above ground stock of the total gold supply including jewelry and industrial (193,472 tonnes). This gives the most favorable conditions to gold for this study.

With this in mind, the chart below presents the stock-to-flow ratio of Gold (yellow) and Bitcoin (orange) projected into the future. What is interesting is that even with a fairly high disinflation rate of 0.06% on gold per four-year halving sequence, the stock to flow ratio of gold is fairly constant whilst Bitcoin is expected to become the asset with the highest stock-to-flow in late 2029. Given the coded monetary policy of Bitcoin, we can propose with fair confidence that after 2029, Bitcoin will be the asset with the highest stock-to-flow ratio and perhaps the ‘flippening’ of de-facto store of value.

Bitcoin performance as sov 2013 to 2018

Bitcoin has now been shown to meet all the criteria of a valid store of value:

  • Bitcoin is widely available to anybody with an internet connection. The Bitcoin network has shown exponential growth in users with each cycle suggesting network effects are in play (salability across space)

  • Bitcoin is divisible to 8 decimal places with the potential for future updates to the code to increase this indefinitely if required for micropayments (salability across scale)

  • Bitcoin is durable in that the ledger is immutable and so long as the private key of a wallet is not lost and the network has at least one node operational, the bitcoin’s will be retrievable (salability across time)

  • Bitcoin is projected to have the highest stock-to-flow ratio of any asset after 2029 and with a codified maximum supply of 21 million units, absolute confidence in this projected monetary policy is possible.

The final question of this study is over Bitcoin’s lifespan, how has it performed as a store of value relative to the USD and in comparison to gold and the DOW index? As noted previously, bitcoin price data has been averaged across numerous exchanges for each month from Sept 2010 onwards. Additionally, the gold price and Dow index have been obtained for this time interval to assess the relative growth and performance as a store of value.

The big challenge in the production of this plot is the relative scale between price and growth movements of Bitcoin relative to USD inflation, gold, and the DOW – it is an order of magnitude larger.

From this dataset we can determine the following metrics:


The price volatility of Bitcoin is well known which can be seen by the extreme maximum and minimum monthly growth. However, what can be argued is that the average long term (in Bitcoin time) trend is over 20% growth month on month. Compared to less than 1% monthly growth of both Gold and the DOW, this is quite impressive.

From my perspective, Bitcoin has shown that within the short timespan of data available, Bitcoin has proven to not only have the necessary characteristics of a store of value, but also has price appreciation performance which is undeniably the best performing asset as a store of value.

As is often the case, perspective is everything. If in doubt, zoom out, the long term trend is still an uptrend.

 Email with your questions or suggestions for future topics!