Bitcoin 101 Part 2: Bitcoin as an Asset Class

Is Bitcoin a Store of Value?

The “Digital Gold” Narrative

Bitcoin is often described as “digital gold” because it shares key properties with gold that make gold a long-standing store of value. Like gold, Bitcoin is scarce (its supply is fixed and cannot be inflated arbitrarily) and durable (it does not corrode or degrade — in Bitcoin’s case, durability is in the form of a robust network that has run continuously since 2009). Investors seeking to preserve wealth over the long term are drawn to these attributes. BlackRock’s Larry Fink, once a skeptic, now recognizes Bitcoin’s store-of-value potential, calling it “an asset that protects you” in times of geopolitical or inflationary fear, no different than gold’s role historically (BlackRock CEO Larry Fink says Bitcoin "Is An Asset Class That Protects You" | Nasdaq).

Track Record of Holding Value

In its short 14-year history, Bitcoin’s price has risen dramatically from fractions of a penny to tens of thousands of dollars per coin. Early volatility was extreme, but over longer periods Bitcoin has appreciated significantly, outpacing inflation by a wide margin. Long-term holders often point out that Bitcoin has never sustained a price drop over a 4-year cycle – historically, if one bought Bitcoin and held for at least four years, the value has been higher at the end of that period (though past performance is no guarantee of future results). This trend is tied to Bitcoin’s roughly 4-year “halving” cycles (when the rate of new supply issuance is cut in half), creating a supply shock that has, so far, contributed to long-term price appreciation.

Volatility vs. Value Preservation

It’s important to note that Bitcoin’s path has been volatile, which is unusual for a traditional store of value. Its dollar price can swing 5–10% in a single day and has experienced multiple drawdowns of 50–80% in past market cycles. For example, Bitcoin surged to nearly $69,000 in late 2021 then fell to around $16,000 by late 2022 – a severe decline during a broader crypto market contraction. These swings mean that in the short term, Bitcoin may not behave like a stable store of value. However, proponents argue that volatility is the price of admission for Bitcoin’s outsize long-term gains. Over the past decade, Bitcoin was in fact the best-performing asset class despite the bumps: from 2014 through 2023, it returned an average of ~50% per year, outperforming every major asset category by a wide margin (Bitcoin Volatility Guide: Trends & Insights for Investors | iShares - Blackrock). The question for investors is whether Bitcoin’s long-term upward trend and scarcity-based thesis make it a reliable store of value looking forward, even if it doesn’t yet have the stability of gold or fiat currencies. A neutral view would acknowledge that Bitcoin is a potential store of value – it has many characteristics of one, but it’s still maturing and its ability to preserve wealth with low volatility is still developing.

How Does Bitcoin Compare to Other Asset Classes?

Compared to Gold

Gold is the classic store of value asset, so it’s the benchmark for Bitcoin comparisons. Supply: Gold’s supply increases ~1–2% per year from mining, whereas Bitcoin’s supply growth rate halves every four years and will eventually hit 0% (no new supply) once 21 million cap is reached (iShares Bitcoin Trust (IBIT) | Spot Bitcoin ETP | BlackRock). This hard cap arguably makes Bitcoin more scarce over time than gold. History and Stability: Gold has a multi-millennia track record and relatively low price volatility. Bitcoin, in contrast, has just over a decade of history and much higher volatility. Over a five-year period, gold’s price fluctuations are far milder – Bitcoin’s volatility is roughly 3.9 times higher than gold’s as of recent years (Bitcoin Volatility Guide: Trends & Insights for Investors | iShares - Blackrock). This means gold may hold its value more steadily in the short run, whereas Bitcoin experiences bigger jumps and drops. Portability and Utility: Bitcoin is easier to store and transfer – you can send any amount of Bitcoin across the globe in minutes (iShares Bitcoin Trust (IBIT) | Spot Bitcoin ETP | BlackRock), while moving physical gold is slow and costly. Bitcoin is also divisible into very small units (1 bitcoin = 100 million satoshis), enabling microtransactions that gold can’t match. Market Perception: Both assets are often seen as inflation hedges or safe-haven assets. During economic uncertainty or currency crises, gold demand typically rises – a pattern Bitcoin has started to follow as well. (Notably, during the 2022 inflation surge, Bitcoin’s price initially fell alongside risk assets, raising debate about its short-term efficacy as an inflation hedge. But over a longer horizon, its decentralized, scarce nature aligns with the qualities investors seek in a store of value.)

Compared to Equities (Stocks)

Stocks represent ownership in businesses with cash flows, whereas Bitcoin has no cash flows – its value is purely what others are willing to pay for it. Return Profile: Bitcoin’s historical returns have been extraordinary; as mentioned, it vastly outperformed equities over the last decade (Bitcoin Volatility Guide: Trends & Insights for Investors | iShares - Blackrock). But it’s also far more volatile. On average, Bitcoin’s volatility is about 4.6 times that of global equities (Bitcoin Volatility Guide: Trends & Insights for Investors | iShares - Blackrock). This puts Bitcoin in a similar risk category as highly volatile individual stocks. In fact, Bitcoin’s price swings are comparable to those of certain mega-cap tech stocks like Nvidia or Tesla (Bitcoin Volatility Guide: Trends & Insights for Investors | iShares - Blackrock), which many investors are already familiar with as high-volatility, high-reward equities. Correlation: Importantly, Bitcoin’s correlation with the stock market has historically been low to moderate. It has at times moved in tandem with risk-on assets (especially during market crises or bubbles), but over the long term, its correlation to the S&P 500 has been low (often cited around 0.2–0.3). For example, in late 2023, the 90-day correlation between Bitcoin and the S&P was observed to fluctuate in a modest range, often between 0 and 0.4 (Crypto Correlations: Perception vs Reality - Coinbase Institutional Monthly Outlook). This suggests Bitcoin’s price drivers (global liquidity, crypto-specific adoption, etc.) differ from those of equities. Use Case: Stocks provide income (dividends) and ownership in companies; Bitcoin provides no income and is more analogous to a commodity. Thus, Bitcoin might be viewed as a complementary holding – like a volatile tech stock without earnings, or as a diversifier that sometimes zigzags independently of equity markets.

Compared to Bonds

Bonds (especially government and high-grade corporate bonds) are considered low-risk assets that provide fixed interest payments. Bitcoin, by contrast, offers no yield (unless one engages in separate yield-generating strategies, which carry their own risks) and is closer to a zero-coupon asset that one hopes will appreciate. Risk/Reward: Bonds are much less volatile; their prices move primarily with interest rate changes and credit risk. Bitcoin’s price is driven by supply/demand dynamics, adoption rates, and market sentiment, making it much more unpredictable. For instance, in a single year Bitcoin’s price can double or halve, whereas a bond yielding 2% will deliver a very narrow range of returns if held to maturity. Inflation Impact: Bonds suffer in high-inflation environments (fixed payments lose real value), whereas Bitcoin is often championed as an inflation-resistant asset due to its limited supply. Indeed, in periods of currency debasement, one might expect Bitcoin to hold value better than bonds – although in 2022 both bonds and Bitcoin had a rough year, showing that theory doesn’t always match short-term reality. Diversification: Historically, stocks and bonds have been inversely correlated at times, which is why the classic 60/40 portfolio (60% stocks, 40% bonds) held up well in many market regimes. Recently, that correlation turned positive (stocks and bonds fell together in 2022), prompting investors to seek new uncorrelated assets (Digital Assets: The Next Frontier for Markets and Investors). Bitcoin could serve as an alternative diversifier since its correlation to bonds is near zero (their price drivers have almost no relation). However, because of Bitcoin’s volatility, investors usually allocate only a small portion to it relative to bonds. In summary, Bitcoin is far riskier than bonds but also holds far greater upside potential. It plays a different role – whereas bonds aim to preserve capital and generate income, a Bitcoin allocation is usually about growth and hedge against systemic risk (with the understanding that it can be a bumpy ride).

Key Takeaway

Bitcoin has evolved into a distinct asset class with traits of commodities (fungible, no yield, driven by scarcity) and traits of currencies (used as a medium of exchange by some, value depends on adoption and trust). It doesn’t neatly fit into traditional categories like equity or debt. For investors, the appeal of Bitcoin lies in its diversification benefits and asymmetric return potential – it has delivered outsized returns historically, albeit with high volatility. Its low correlation to many traditional assets means that, in theory, a small Bitcoin allocation could boost portfolio returns without heavily increasing overall risk (we will examine this in Part 5). However, its volatility and young history mean it lacks the stability and predictability typically desired in a “store of value” like gold or a treasury bond. Thus, investors often view Bitcoin as a high-risk, high-reward allocation – a new asset class to be considered alongside (not instead of) gold, stocks, and bonds in a well-rounded portfolio.