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Stores of Value
Definition of ‘Stores of Value’ - A store of value is an asset that is viewed as retaining value over time, so can be used as a hedge against inflation and the potential loss of value in high-risk assets.
What are stores of value?
Stores of Value Definition – Stores of value are assets that maintain their value over time regardless of economic risk and volatility.
Stores of value are often also known as safe-haven assets as they tend to exhibit less price volatility and risk, although this means that they can often produce lower returns than higher-risk assets.
Scarcity tends to support the value of safe-haven assets as the value rises when demand outpaces supply.
Investors tend to flock to safe-haven assets during times of macroeconomic uncertainty and geopolitical tensions, when they become more fearful of their assets losing value amid market volatility.
Potential stores of value include:
- Stable fiat currencies, e.g. US dollar, Japanese yen, euro
- Precious metals
- Real Estate
Assets that are considered to be poor stores of value include:
- Speculative stocks
- Perishable items
Gold and other precious metals are considered to be especially good stores of value because they have been used as currencies throughout history.
Physical metals investments do not degrade to be held for decades and inherited. Precious metals are also relatively easy to store, and transport, and they are straightforward to exchange for money, goods, or services.
The gold price reached a record high in 2020 as the global COVID-19 pandemic prompted governments worldwide to launch unprecedented economic stimulus and cut interest rates to zero.
Interest-bearing assets such as U.S. Treasury bonds have historically been considered stores of value, but negative interest rates have resulted in such assets shedding value in real terms.
Cash is a generally poor store of value as inflation erodes its purchasing power over time. However, stable fiat currencies such as the US dollar (the world’s global reserve currency) and the Japanese yen (considered a safe-haven asset) are relative stores of value during times of uncertainty.
While useful, perishable items such as food are not stores of value as they cannot be held for a long period of time.
For an asset to be considered a store of value, its relative value will not change over time. But any change in price is likely to be smaller than higher risk assets such as stocks during recessions and other times of crisis.
Bitcoin is considered to be a store of value compared with more volatile alternative cryptocurrencies (altcoins). It has the potential to provide stability and access to funds in countries with volatile fiat currencies and unstable banking systems. As “digital gold”, Bitcoin is easier to store, transport and exchange than physical gold and more divisible.
Is cryptocurrency a store of value?
There is much debate over whether Bitcoin and other cryptocurrencies are a store of value. Some market observers see Bitcoin as competing with gold as a safe haven, while others point to its highly volatile price and lack of regulation as preventing it from becoming a viable safe haven. Investors can opt to hold both gold and cryptocurrencies in a diversified portfolio.
Is a stock a store of value?
Stocks can be a store of value if they exhibit low price volatility. But speculative stocks are not considered to be stores of value as their prices tend to be highly volatility and they can even become worthless if the company fails.
What is the safest store of value?
Precious metals are among the safest stores of value as they have been used as a medium of exchange for millennia and tend to hold their value during times of economic crisis. Cryptocurrencies are increasingly providing an alternative, with Bitcoin touted as “digital gold”.
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