Key takeaways
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Gold has long met store of value standards, while fiat currencies lose purchasing power over time. Bitcoin now meets many of the same store of value criteria.
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With a hard cap of 21 million coins and 24-hour global trading, Bitcoin offers digital scarcity, sustainability backed by network security, and liquidity that rivals many traditional assets.
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Concerns remain, including short-term volatility, inconsistent global regulations, cybersecurity risks, limited historical data, and difficulties integrating Bitcoin into traditional investment models.
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Yet rising inflation, geopolitical tensions and loss of confidence in some fiat currencies are prompting pension funds to explore Bitcoin as a long-term strategy.
A key question has followed Bitcoin (BTC) since it rose to prominence: can it reliably act as a store of value? The idea has long intrigued individual investors, and even pension funds are now beginning to explore it. They evaluate whether Bitcoin can preserve its value over time, potentially alongside, or even competing with, traditional safe assets such as gold.
This article examines what defines a store of value asset and how pension funds are approaching Bitcoin. It compares Bitcoin with established store of value assets and explores how pension funds’ crypto exposure can expand beyond BTC.
What defines a store of value asset?
A store of value asset retains its purchasing power over long periods of time. It generally has four main qualities:
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Rarity: A limited offer and difficult to develop
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Sustainability: The ability to last without deterioration
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Portability: Ease of transfer and storage
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Liquidity: The ability to be easily exchanged for goods or other assets.
Gold traditionally meets these standards. In contrast, fiat currencies lose value over time due to inflation and an increase in the money supply. Pension funds are interested in Bitcoin because in some areas it can outperform gold and fiat currencies.
The total supply of Bitcoin is capped at 21 million coins. It is completely digital, remains secure as long as the network operates, and trades globally 24 hours a day with strong liquidity.
Did you know? Although it is called “coins,” Bitcoin only exists as entries in a decentralized digital ledger. There are no physical Bitcoins anywhere.
Pension funds: cautious but interested
Pension funds operate under strict regulations designed to protect investors’ money and ensure stable retirement income over decades. This framework has made them cautious about volatile or lightly regulated assets. Their main concerns are:
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Strong short-term price fluctuations
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Regulations vary depending on the country
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Secure Storage and Cybersecurity Risks
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Limited long-term performance data
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Challenges of integrating Bitcoin into traditional investment models.
However, the broader economic environment is changing. Rising inflation, geopolitical tensions and concerns about the stability of some fiat currencies are prompting investors to examine alternative assets that can help preserve value. As cryptocurrencies become increasingly integrated into traditional finance, pension funds are wondering whether excluding digital assets could limit diversification rather than enhance it.
Case study: AMP Super’s approach to Bitcoin
Australian superannuation fund AMP Super has allocated Bitcoin futures through its dynamic asset allocation program. The fund does not classify Bitcoin as a speculative bet. Instead, he views Bitcoin as part of a broader strategy to protect purchasing power and guard against currency weakness.
The fund’s research found that Bitcoin fits the criteria as a store of value well, in some cases more effectively than many conventional assets.
The fund’s approach involves:
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Evaluate Bitcoin against store of value criteria such as scarcity, durability, portability and liquidity.
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Use trading signals in its dynamic asset allocation program that include indicators of price momentum, investor sentiment, liquidity and inflation developments to guide allocation size and timing.
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Observe how Bitcoin reacts to changes in inflation expectations and other macroeconomic signals rather than simply focusing on inflation levels.
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Use on-chain analytics to monitor blockchain data metrics for assessing market conditions and generating trading signals.
This prudent, evidence-based strategy offers a model for other pension funds, combining traditional analysis with cryptocurrency-specific tools.
Did you know? A Bitcoin can be divided into 100 million units called “satoshis”, which allows micropayments.
How Bitcoin Compares to Traditional Store of Value Assets
Bitcoin differs from assets such as gold in its volatility, liquidity, scarcity and regulatory risk. Understanding these differences is important for assessing its potential role in a diversified portfolio:
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Rarity: Bitcoin’s capped supply is enforced by a code. This contrasts with gold, which can be mined, and fiat currency, which can be expanded through policies.
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Portability and liquidity: Bitcoin can be transferred around the world in minutes and traded 24 hours a day. Gold is expensive to move and store, and fiat transactions rely on banking infrastructure.
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Response to inflation: Bitcoin and gold often rise when inflation expectations change. This can be useful for funds seeking to maintain real returns.
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Diversification: Bitcoin’s correlation to stocks and bonds has varied but generally remains low enough to provide diversification benefits. Even a small allocation can improve risk-adjusted returns in some portfolio simulations.
Crypto Investments Beyond Bitcoin for Pension Funds
Pension funds are also exploring crypto investments beyond Bitcoin. For example, transforming rights to assets into digital tokens could streamline how investments are held, transferred and settled. This approach makes assets programmable, allows digital wallets to replace traditional accounts, and uses blockchain to reduce operational costs.
However, current systems still require technical improvements and wider adoption to fully realize these benefits. Blockchain has the potential to reduce reconciliation costs and unlock new forms of settlement, but several implementation challenges must be addressed.
Bitcoin faces challenges such as:
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Evolution of regulations for digital assets
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Provide secure, insured and approved care
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Obtaining regulatory approval for new projects
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Develop internal expertise through training.
Pension funds view Bitcoin as a complement rather than a replacement for assets such as gold or inflation-protected bonds. They found that Bitcoin can behave as a store of value asset during changes in inflation expectations and that modest allocations can help improve overall portfolio performance.
