Are Cryptocurrencies Still Far Away from
a Reliable Store of Value?

According to Binance Academy, a store of value is used to describe the property of an asset, a commodity or currency and whether it can avoid depreciation over a long time. For an asset, commodity or currency to be considered as a reliable store of value, it should have its value either increase or stay stable over a long time so that the owner can sell the asset for a similar or higher value than the price at which it was initially bought. This value may be based on the market price or liquidity.

    Most fiat currencies are considered a good store of value given their higher liquidity levels. Unfortunately, due to inflation, their purchasing power ends up on the decline. Precious metals, silver and gold are also considered as good stores of value due to their scarcity, and their ability to retain their value over a long period without deterioration of value.

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Cryptocurrencies as a store of value and mediums of exchange

Cryptocurrencies derive their value both from their use as mediums of exchange and as stores of value. For a currency or asset to be used as a store of value it needs to have its intrinsic value derived from a practical utility. The cryptocurrencies’ utility as a store of value is dependent on their utility as a medium of exchange. In this regard, cryptocurrencies will have to be effective facilitators of transactions. They will need to be ubiquitous to increase their value; this is often referred to as the network effect. It means the more widely accepted the currency is, the more flexible it becomes in facilitating transactions which in the end stabilizes the currency’s value.

Well, today a comparison between Gold as a store of value and cryptocurrencies as a store of value would give gold better credibility than cryptocurrencies. However, it is important to take into consideration that Gold has matured a great deal as a store of value and therefore is more stable while cryptocurrencies are still in their infancy, and therefore, more volatile. Some of the aspects that characterize an asset (or a digital currency) while in its infancy stages include; rapid appreciation of price at first, and high but declining volatility. This was seen in Gold when it was still maturing and is exactly what is being displayed now by cryptocurrencies.

    A further comparison would reveal, for instance, that the current market cap for bitcoin stands at $143 billion while that of gold stands at $7.5 trillion. This would mean bitcoin is storing 2% of gold’s wealth. If appreciated in the light maturity stages, in 10 years to come, there is a probability that bitcoin would have grown also to its maturity stage.

Understanding the Challenges

A published FIO research on March 12, 2019, revealed that 60% of cryptocurrency users are still scared of making bitcoin payments. FIO research found out that the user experience (UX) for cryptocurrency was wanting and that the majority of wallets were not able to make payments between wallets. Additionally, cryptocurrencies suffer majorly from suspicion by prospective users.

Some of the factors that have hindered a seamless experience include; there is no standard payment request system for a large portion of the crypto wallet ecosystem as each blockchain has a unique address format. Secondly, most blockchain-based wallets do not support metadata. Additionally, there was limited metadata interoperability that would not allow for colored coins and op-return-powered transactions to take place.

If this is the truth on the ground, then cryptocurrencies still have a long way to go in becoming a widely accepted medium of exchange. KPMG, in their November 2018 report, agrees that Bitcoin and other cryptocurrencies will need some more time before they can truly function as reliable stores of value. The report, however, sites rampant volatility, lack of trust in digital assets and scalability issues.

    KPMG perceives that institutionalization of cryptocurrencies would enable for more participation from the larger financial industry ecosystem which would boost trust and scale the tokenized economy. It believes that involvement on a large scale from financial institutions like banks, Fintech companies as well as exchanges are exactly what the cryptocurrency industry needs to enhance integration into the global financial system.

For now, economists, analysts and researchers view cryptocurrencies as mainly assets that are used for speculative investments by small investors who believe that cryptocurrency’s value will go up soon or appreciate the potential of their technology. KPMG also points out to the industry’s need to comply with existing regulations and the need for governments to have a new set of unique regulations that appreciate the unique characteristics of cryptocurrencies. Hopefully, once issues like taxation, security, regulatory compliance, liquidity and financial auditing are addressed cryptocurrencies will then have a great chance at being a reliable store of value.

NYU Stern Professor Aswath Damodaran weighs in on this debate through a blog post he wrote The Crypto Currency Debate: The Future of Money or Speculative Hype?

He argues that if cryptocurrencies will see a great future as a legitimate form of payment and a reliable store of value, then it will have to lose some of the characteristics that make crypto so alluring as a speculative asset. Their volatility, price swings, the potentially lucrative returns; these make cryptocurrencies terrible currencies but attractive speculative assets. He ends by saying, a cryptocurrency with a bright future of becoming a medium of exchange and a store of value should think of itself as a medium of exchange and act accordingly.

Enter PDX Coin - A Reliable Store of Value

While Bitcoin and Ethereum are two of the most popular and volatile cryptocurrencies on the market today, new crypto coins are being created every day. It’s not just about adding a new cryptocurrency to the market, it’s also about having more control in the process.

    That’s why PDX, a globally compliant digital currency, has been structured in such a way that it will become a leading safe-harbor tokenized store of value. PDX’s value inherent in a transferable digital token will enable holders to store and preserve wealth, and seamlessly engage in borderless financial transactions.

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The reason why PDX stands out against other digital currencies is because of its well-designed ecosystem that accompanies its tokenization efforts. Its valuable utility and the velocity of tokens through the ecosystem means it will likely see its token appreciate significantly as demand for its unique financial services grows and pressures token prices.

Bitcoin has no assets and no business plan behind it. PDX has both. This innovative digital currency has the backing of underlying tangible assets, that is, physical reserves of crude oil and natural gas, and other energy assets. It offers all of the advantages of blockchain-enabled digital currencies while providing a verifiable asset base to protect its value, stability and security as a medium of exchange.

Ultimately, PDX will disrupt the way banking is conducted between cryptocurrencies and fiat currencies, and will build a unique, cutting-edge cryptocurrency exchange platform. These characteristics, together with a focus on transparency and regulatory compliance, position PDX Coin as a top safe haven digital currency.

The Bottom Line

Cryptocurrencies are more flexible, and their flexibility will only grow further with the growth in crypto network. Cryptocurrencies are digital and therefore can be used for international transactions with no need for conversion fees and, hence minimal transaction fees. The immutable nature of the blockchain enables cryptocurrencies to effectively deal with the issues of trust. Its distributed nature cushions it from manipulation and any attacks by the central bank.

But the million-dollar question still stands: are cryptocurrencies still far away from being a reliable store of value?

From the above analysis, it may be the case. Cryptocurrencies need time to build trust and confidence, to be widely accepted as a medium of exchange, to grow into maturity as a store of value and shade of some volatility, to establish better institutionalization, and to achieve better liquidity among other key considerations outlined above. And that’s what PDX is trying to achieve.