Store of Value

The article Store of Value tries to explain why it doesn't make sense to separate the store of value and the payment method phases, as some part of the community does. | Begleri

Store of Value

Well, I have problems with the concept of Store of Value. It may be because of my opinion about the beliefs of the majority of Bitcoiners, that the process of Bitcoin adoption follows a certain set of rules. I would like to blame this on Saylor's interpretation of The Bullish Case of Bitcoin and its influence on the Bitcoin ecosystem.

The book states that a monetary asset cannot become a method of payment before it is widely valued and considered as a store of value. Many have taken it literally and criticized the fact that Bitcoin is being used as a payment method with its price based on Fiat parity. Although it is true that a monetary good that is not valued by a large part of the population cannot become a method of payment, but using it as a method of payment can only help its adoption, it never harms it.

In order to express the idea well, I would like to clarify a couple of concepts that most plebs haven’t internalizad. The first thing is to accept that hyperbitcoinization implies the fall of private property as we understand it. This is so due to the loss of ‘soft violence’ by the state. There is soft violence (confiscation of money) and hard violence (monopoly of force) to maintain private property, the basis of our model. With unconfiscatable money, we abandon private property focused on a legal framework and understand it from a Stirnean approach (formulised by Max Stirner). It is no longer a natural right of the individual, but what I own and can defend is considered to be my property. Soft violence was what allowed the state to subjugate the population, and the monetary monopoly was in charge of providing unlimited resources to execute it.

The second thing is that in a hyperbitcoinization scenario, the state automatically disappears. By definition, if it does not have confiscatory power, we can no longer be talking about the state. Although we imagine boomers contributing voluntarily to a form of local government, they will be doing so voluntarily in exchange for receiving services: protection, health, roads etc. That, dear friends, is called a private company, and it tends to go bankrupt if it is not profitable in the long term. The disappearance of the state, as such, implies the forced privatization of security and military power. Therefore, since violence only exists privately, the law written in the times when the state still existed ceases to be valid and we enter a scenario where force commands and executes the will of private agents. At that time, the property registration is no longer valid. No matter how much a landowner argues that he signed some documents that prove his property, if he does not have the resources to defend it, it will not be de-facto. In some countries, like Spain where housing prices have skyrocketed, the occupation of real estate has become a conflict. Without an eviction police, the owners are defenseless in the face of violent squatters who refuse to respect their legally signed document. This is not to mention that, without a state, there is no longer a central narrative that grants legitimacy to any document.

The moment landlords no longer have enough power to demand payments from their tenants on a regular basis, they lose the reason to comply with their payments. Some may argue that the majority will continue to do so out of tradition, good faith, or civility, but the truth is that if they comply with these payments voluntarily, it will be due to intimidation. Marx already pointed out that the landowners were the problem, but there was no way to end their power without an unconfiscatable monetary asset. In a scenario where only hard violence exists, the dominated party may feel more tempted to arm themselves and reveal than when they could not do anything in the face of soft violence, and hard violence represented a very high risk to take. Not to mention that universal and non-confiscatable money equalizes the conditions between the parties, allowing the dominated party to access weapons more easily.

Hyperbitcoinization is inevitable, due to its properties, Bitcoin will be imposed as the world reserve currency. Many ordinary people have the misconception that different types of money can coexist, when in reality, only the harder type of money will survive in the long run. Too many authors have dealt with this subject, so I will not go into detail, but I would dare to say that this has been a legacy of Friedrich Hayek through his book The Denationalization of Money. So we are clear that in the long term, Bitcoin will prevail as a unit of account and the products and services that are on the market will be expressed in sats. It is currently that we express the prices of said goods and services in dollars for their world reserve currency paper and we take out the parity in Satoshis. We obtain this parity from the price of Bitcoin expressed in dollars, which depends in the long term on a single variable: the amount of bitcoin in the hands of holders. The moment the president of El Salvador accepted Bitcoin as legal tender, he put the entire world into a game theory scenario that encouraged players to accumulate as much bitcoin as possible. This is so because if there are players like him or Saylor who are buying bitcoin without plans to sell it, they are emptying the exchanges. Accepting Bitcoin as money encourages you to exchange bitcoin for products and services, not to save it to later sell it back to FIAT. On the one hand, we have the dollar with inflation problems (hyperinflation depending on when you read this) and on the other hand, the hardest form of money that has ever existed, Bitcoin. If holders are just buying and traders continue to play the price, we see how bitcoin is moving from traders to holders as more players take this stance. The Central African Republic entry in mid-2022 is a demonstration of that more players are getting it. If you follow the trend, there will be no bitcoin in the hands of traders and there will be no sellers, which means that the price will not exist. With no glitches in the Bitcoin protocol, there seems to be no reason for users to leave the network, so we'll assume this trend will continue and more players will adopt a hold rather than a trade position.

So, the criticism of using Bitcoin as a payment method is based on the fact that we are using bitcoin at FIAT prices. Although it is true that it does not make sense for those who have a parallel FIAT account, for those who are all-in it is the only option. Those who use bitcoin on a daily basis are contributing to the holder position and not to the trader position since those bitcoins do not return to the exchange to be sold, so the criticism makes no sense beyond the fact that these bitcoiners are not using your bitcoin well. We could say the same about those who hold bitcoin in a hot wallet; it's not the smartest thing to do, but it doesn't affect the market. A thought that can lead you to believe that spending your Bitcoin is not the best option is to believe that the prices of products and services tend to go down when expressed in a Bitcoin account. The clear example is that of the pleb who taught us that a pizza at that time could be exchanged for 10,000 bitcoins. The same thing happens if we look at the price of an iPhone expressed in bitcoin during the last 10 years. We see that it goes down as the price of Bitcoin expressed in dollars goes up. It is evident that the amount of bitcoin that is in circulation and the number of users in the world that use it suggest an upward revaluation of the monetary good, which means that a bitcoin today can be exchanged for fewer products and services than in the future. That is why we see how the value of 1 bitcoin today is greater than the value of 1 bitcoin in 2012. It is exchangeable for more, which leads us to say that the value has increased. The concept "Store of Value" expresses this relationship. As a result, these opponents of using bitcoin as a payment method believe that we should wait until the prices of goods and services are lower (Bitcoin price continues to rise) so that the value of this bitcoin is higher, making the decision appear more rational at first glance.

We must add to this belief the power of a limited supply, which leads us to a real price discovery where, thanks to competition, prices tend to marginal costs. If prices are trending down as more competition enters, it would be normal for our bitcoin to be able to buy more products and services now that prices are falling. That would allow us to exchange 1 bitcoin in the future for more products and services than today, encouraging the saving of that bitcoin. In this case, the relationship is also fulfilled, so that the concept of "Store of Value" makes sense. But for that to be true, there must be more competition to lower prices, otherwise the supply will be reduced and the price will increase. It is this scenario that breaks the relationship between monetary goods and prices, causing me to exchange my bitcoin for fewer products and services in the future than in the present, encouraging consumption in the present where the value of money is greater. It is because of the existence of this scenario that the word "Store" bothers me, whose nature is static, creating a simile to accumulate, it only makes sense upwards. But the truth is that value is an equilibrium that varies constantly depending on prices, and prices depend on how supply and demand interact. I would like to give an example where this scenario could occur where the prices expressed in Sats are higher in the future than in the present.

Currently, a soft drink costs 3000 sats. We obtain this price by the parity of bitcoin to the dollar. In a hyperbitcoinized future where there are no price or dollar-dependent prices, the soft drink may be exchanged for 300 or 30 sats. This will depend on how easily the soft drinks arrive (supply) and how much consumers are willing to pay who wants them (demand). It is very nice when these prices are lower than the current ones because the rule is fulfilled and we see that bitcoin has served as a "Store of Value" if we want to buy soft drinks. But in a world without a state or private property, we do not know the power that landowners will have. This will depend on their ability to preserve property based on military power. In a scenario without landowners, the population would have fewer payment obligations to meet each month. Therefore, without the need to produce to pay, we will see how a large part of the population loses incentives to generate more than what it needs to survive, depending on its preferences. Without a population in need of producing to pay, the labor market is restructured, which could mean more expensive labor in many sectors where we will see price increases in the products and services they offer. If the workers at the soda factory now don't have to pay rent at the end of the month, they may decide not to trade their time for money they no longer need. Such a scenario would cause a higher wage proposal from the company, increasing costs and therefore sales prices. The profitability of this company will be dictated by the demand, which may agree to pay 4000 sats for the soft drink or stop consuming it. The error of the plebs who use the term "Store of Value" is based on believing that the supply of products and services will be maintained once the economy is hyperbitcoinized. The balance to which Bitcoin will lead us cannot be anticipated, since we will see large variations in consumer preferences (demand) and we will see how the incentives for producers and labor also vary (supply). What we can know is that markets with high demand will see great competition between producers to satisfy that market and prices will tend to fall, so Bitcoin would serve as a "Store of Value" in the market for those products.

It is because of this misunderstanding of value that we see plebs saying that Bitcoin should not be treated for payments yet and we should wait for it to be accepted as a store of value by the majority. This is usually the argument of many to say that the price of Bitcoin will stabilize at some point. Although using it as a payment method encourages adoption, what will precipitate it exponentially will be the malfunctioning of supply chains and the consequent death of the dollar. Everything has always been about resources and how they are distributed among players, money only plays as a mediator and there are agents who do not sell their preferences.