Lately, the store of value (SoV) narrative has dominated the conversation around Bitcoin. But if you’re a data-driven individual (and I suspect most of you are), then you might be wondering how to quantify this narrative. Let’s dig in and see what the data shows us.

One approach that can be used is the stock-to-flow methodology. First presented by Saifedean Ammous in his book “The Bitcoin Standard,” and then made popular by “PlanB” on Twitter. The model suggests that humans ascribe value to useful and scarce assets in aggregate based on the ratio of stock to flow. The stock is the total amount in circulation, and the flow is the new amount entering the market each year.

To validate this notion, PlanB plotted the “scarcity” AKA stock/flow ratio on the X-axis and the Market Capitalization on the Y-axis in log scale. Surprisingly, real estate, gold, silver, and diamonds conform to this model quite well. When Bitcoin is added to this chart at various points in time it seems to follow the same pattern, more or less.

Since Bitcoin’s issuance schedule is known years in advance, it’s possible to plot the expected market cap into the future. The next chart shows exactly that.

Another way to think about Bitcoin’s evolution as a store of value is by simply counting the number of addresses holding one Bitcoin or more. The reasoning here is that mass adoption for a SoV necessitates a large group of participants. Ideally, the number of participants will grow larger over time, indicating an increasing interest in the underlying instrument.

The second y-axis on this chart shows the circulating supply turnover over the last year. As you can see, the number of entities holding at least one BTC has been steadily increasing over time. At the same time, the circulating supply turnover has been falling since 2013. This data paints a pretty clear picture to me. As we move forward in time, more people are HODLing Bitcoin and those same Bitcoin are less likely to be in circulation. This is in keeping with a store of value narrative, which aligns with the long-term perspective of gold bugs and real estate moguls.

This last chart makes the same point but, in my mind, it supports the value proposition of Bitcoin using supply and demand. This angle is more akin to the thinking of retail investors, who may hold positions of any size. The reality is that the number of unique addresses in use has been growing in log scale for the last decade while the annual inflation rate has been steadily decreasing.

When you put it all together, Bitcoin makes a lot of sense as a store of value. The supply is limited, demand is growing, and after ten years we’re finally seeing institutions and the most respected investors in the world chime in. Bitcoin is looking more and more like other store of values that have stood the test of time, such as gold and real estate. Satoshi said this in 2010:

“As a thought experiment, imagine there was a base metal as scarce as gold but with the following properties:

- boring grey in colour

- not a good conductor of electricity

- not particularly strong, but not ductile or easily malleable either

- not useful for any practical or ornamental purpose

and one special, magical property:

- can be transported over a communications channel”

Well, ten years later I think it’s pretty safe to say that the experiment was a success. That one special, magical property turned out to be a game changer.

Hans Hauge

Head of Quant Strategy

Ikigai Asset Management