Bitcoin came into existence to function as a low friction digital payment system. Bitcoin evangelists hope that the digital currency will compete directly with money to finance everyday consumer purchases. While Bitcoin has enjoyed increasing adoption among online retailers, the number of stores that accept Bitcoin are only a small fraction of the entire e-commerce ecosphere. Another increasingly popular use of Bitcoin is as a store of value comparable to precious metals. With increasing geopolitical instability around the world, does Bitcoin make sense as an asset safe haven?

Bitcoin as a Store of Value
Bitcoin was never conceived as an investment vehicle. You should also know that there is no FDIC for digital currency and you could conceivably lose your entire portfolio of digital currency should the price go to zero. Those who choose to invest in Bitcoin as an investment must realize that this is pure speculation. Bitcoin fluctuates as does any currency on the Forex market and will respond to unpredictable events like political coups and bank failures. There may be one day where there is deposit insurance developed for digital currencies, or perhaps even being able to trade the stock market denominated in Bitcoin itself. These will have to come in time as the Bitcoin infrastructure is still maturing.

It is also important to realize that a crypto currency like Bitcoin is digital only and has no physical nature like paper notes and metal coins do. One of the major appeals for a crypto currency like Bitcoin is that supply is fixed, a number that will stand at 21 million when all of the Bitcoin has been mined. Unlike fiat currency which can be inflated by central banks, this hard cap is an important selling point for Bitcoin. Governments typically like to devalue their currencies to make their own exports cheaper compared to the rest of the world. Bitcoin’s core strength is that it cannot suffer devaluation through either the government’s monetary or fiscal policy.
Bitcoin has done a remarkably good job maintaining its value in times of crisis. It’s typical that during times of crisis a currency suffers inflation, where the amount that the currency buys is less than a year ago. The nice thing about gold is that it’s purchasing power remains fairly steady over time: an ounce of gold will buy roughly the same amount of goods no matter the date (it is resilient towards inflation). The same can be said for Bitcoin, which has seen its price rise from nothing to over $1000 before settling into the $600 range in 2016.

Concerns About Storing Wealth in Bitcoin
We still haven’t seen how Bitcoin will hold up if economies start to implode or if the Internet is not as functional as we currently take for granted. One could reasonably worry if the Bitcoin network would even function at all in a time of crisis? The benefits of Bitcoin as a store of value stem from its digital nature. A digital currency, unlike heavy precious metals like gold and silver, can easily be transported anywhere around the world. The long-term concern is whether, in times of crisis, the Bitcoin network that exists across the globe is both still functioning and accessible by anyone with an Internet connection. Your coins aren’t worth anything unless there’s an infrastructure available to trade them and confirm transactions.

Whether you choose Bitcoin or something more traditional like gold, having alternative stores of wealth makes sense as part of a balanced portfolio.