A calculation that shows that Bitcoin is becoming a store of value

A calculation that shows that Bitcoin is becoming a store of value

It may come as a surprise, but Bitcoin (BTC -4.01%) can finally fulfill its potential as a store of value. Since its creation, many have struggled to categorize exactly what Bitcoin is and what purpose it serves. The digital currency has been seen by some as a viable form of payment, a hedge against inflation, an alternative to fiat currencies and even digital gold.

While it may actually be a mix of all of these, now more than ever it looks like Bitcoin is acting as a traditional safe haven.

Although gold is touted as the premier safe haven in the face of economic uncertainty, the prices of Bitcoin and gold are actually at some of the highest correlation levels today and could be a sign that the story surrounding Bitcoin may be changing.

A calculation that shows that Bitcoin is becoming a store of value

Image source: Getty Images.

The current landscape

Although Bitcoin’s main purpose remains somewhat ambiguous, it has performed surprisingly well over the past month as turmoil swept through the banking industry in the US and Europe. Since banks such as Silicon Valley Bank and Credit Suisse (CS -0.08%) toppled in early March, Bitcoin is up more than 25%.

Similarly, when news broke of the bank failures, the price of gold also skyrocketed. Gold has risen nearly 10% since March and is at an all-time high of more than $2,000 an ounce.

Still, while Bitcoin’s price is nowhere near the all-time highs that gold is, both have traded in a surprisingly similar fashion. Today, the correlation coefficient between the two is about 0.94. Consider that the scale ranges from 1 (perfect correlation and moves in lockstep) to -1 (negative correlation and moves in opposition). There has only been one other time in history that the two have traded at such high levels, and that was back in 2020.

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Since Bitcoin has long been criticized for its volatility and lack of intrinsic value, this high level of correlation is a significant milestone for the cryptocurrency. During much of the past year, it has moved more in line with the stock market, and technology stocks in particular. But now that seems to be changing.

It may be a stretch, but perhaps this could mark the beginning of Bitcoin’s legitimation as a viable safe haven in the face of economic turbulence.

Why Bitcoin

One of the main reasons why Bitcoin is proving to be a legitimate store of value is its scarcity. Unlike traditional currencies, which can be printed at will by central banks, access to bitcoins is strictly limited. There will only ever be 21 million tokens in circulation, meaning their value is unlikely to be eroded by inflation in the same way that fiat currencies can.

Furthermore, its decentralized nature means that it is not subject to the same kind of political or economic pressures that can affect traditional currencies. Although central banks can be subject to political pressure, Bitcoin operates completely outside this system. This gives it an independence and security that traditional currencies simply cannot match.

More people are likely to come to this realization, although that can only come if further financial pressures cause other institutions to fall. Should this be the case, it would make a compelling case to have some exposure to Bitcoin.

With the price still far from its all-time high, buying today seems just as enticing. Simply put, Bitcoin’s potentially lucrative future seems to outweigh the risks often associated with cryptocurrencies.

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RJ Fulton has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.

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