Question

Money is defined as a medium of exchange, store of value, and a unit of account. With regards to cryptocurrencies, can these be considered as a storage of value ? explain in detail.

Answer 1

No cryptocurrencies can not really be considered as a good store of value.

the store of value function of money, and more generally for assets, means that they retain their value and could be used in the future to make the valuable transactions as and when required. Traditional Money retains its purchasing power and can be used for a transaction later and is thus a good store of value. A major factor that can reduce the value fo this function of money is high rates of inflation. but there are countable instances where the world has experienced hyper inflation and thus traditional money is a goos store of value.

cryptocurrencies on the other hand vary in their values significantly. It is difficult to think of them as currency as they represent more closely an investment, like in the stock market which can be extremely volatile due to animal spirits. Empirical evidence has shown that there are large swings in the value of cryptocurrency, often on a daily basis, which has led to both boom and bursts in the cryptocurrency market in the short span of time it has been operational. Thus, the holder of cryptocurrencies can not be confident of its value in the future and it may not be enough to make transactions. Thus, cryptocurrencies do not act as a store of value.