As schemes face inflationary pressures and seek long-term security, understanding the evolution of assets like Bitcoin is vital. Though still relatively new, Bitcoin’s core traits: scarcity, portability, divisibility, and decentralisation, mirror or even surpass those of traditional stores of value. For pension funds tasked with long-term asset protection, this merits closer attention.
While politics influence our interaction with money on a local level, it’s technology that reshapes our relationship with money on a global, lasting scale.
Since the 19th century’s telecommunication boom, transactions could move at light speed, while bearer assets like gold moved physically, slow and cumbersome. This gap enabled banks and governments to control fast payments. Bitcoin is the first tool to settle scarce value at light speed.
As new technologies arise, old ledgers become obsolete, replaced by globally relevant ones. When the world industrialised, gold emerged dominant. As communications advanced, fiat replaced gold. Now, with digital scarcity and digital settlement, we face the dawn of a new monetary age.
Bitcoin: A new kind of scarcity
Enter bitcoin, the first form of money in all of history designed to have a hard-capped fixed supply. Bitcoin takes the principles of stock-to-flow and scarcity to a whole new level. Whereas gold’s stock-to-flow ratio has been high enough to preserve its value for millennia, bitcoin’s stock-to-flow ratio is designed to continuously improve as it becomes scarcer over time.
Bitcoin’s total supply is capped at 21 million units, and its issuance rate is governed by a process called the halving, which reduces the rate of new bitcoin creation by half approximately every four years. The most recent halving occurred in April 2024, significantly reducing the flow of new bitcoins.
As a result, bitcoin’s stock-to-flow ratio is now approximately double that of gold. And because of the halving, the stock-to-flow ratio of bitcoin will keep doubling every four years. This makes bitcoin the scarcest monetary asset in terms of stock-to-flow dynamics. With this increasing scarcity, bitcoin is now positioned to become the most valuable store of value in history, further enhancing its role as a deflationary asset immune to inflationary pressures.
Source: Bitcoin Wiki – Controlled Supply
In his book The Bitcoin Standard, the economist Saifedean Ammous explains how bitcoin’s scarcity is unique.
"No matter how many people use the network, how much its value rises, and how advanced the equipment used to produce it, there can only ever be 21 million bitcoins in existence. There is no technical possibility for increasing the supply to match the increased demand.”
This built-in scarcity makes bitcoin immune to inflationary pressures. Unlike silver or copper, which suffered from overproduction, bitcoin’s supply is hard-capped, and its flow decreases with every halving event. This ensures that, as more people demand Bitcoin, its value will rise, rather than its supply being inflated.
With the 2024 halving, bitcoin’s stock-to-flow ratio has now surpassed gold’s, making it the scarcest monetary asset on the planet. While gold has served as the premier store of value for millennia due to its scarcity, divisibility, and durability, bitcoin surpasses gold on these key metrics. Both assets are durable and resistant to inflation, but bitcoin’s fixed supply, continually decreasing issuance rate, ease of use, and portability give it a clear advantage.
Bitcoin’s superior scarcity and deflationary nature, position it as the optimal store of value in a world where maintaining wealth across time is becoming increasingly difficult. As demand for a reliable store of value grows, bitcoin is poised to attract more attention from individuals, corporations, and, as we’re seeing, even governments.
A digital gold standard
Bitcoin's combination of stock-to-flow dynamics and its ability to maintain scarcity and trust over time makes it a rare and revolutionary store of value. Its unique monetary properties include:
Absolute Scarcity
While gold’s supply is continuously expanded through mining, bitcoin’s total maximum supply is fixed forever. No matter how much demand increases, bitcoin’s flow will decrease over time, making it increasingly scarce.
Portability and Divisibility
Bitcoin is digital, meaning it can be transferred across the world in seconds without any physical limitations. It is also easily divisible, with each bitcoin consisting of 100 million satoshis, allowing for microtransactions even as its value rises.
Decentralisation
Unlike gold, which can be hoarded or controlled by governments and central banks, bitcoin operates on a decentralised network. No single entity or authority can manipulate or alter bitcoin’s supply, ensuring that it remains trustworthy and immune to political interference.
Rising Stock-to-Flow
With bitcoin's 2024 halving already complete, its stock-to-flow ratio has now surpassed that of gold, currently standing at roughly double gold’s ratio. In 2028, bitcoin’s stock-to-flow will be quadruple that of gold. In 2032, it will be eight times that of gold, and so on, until bitcoin’s stock to flow becomes infinite. This makes bitcoin the scarcest monetary asset in history.
The future of bitcoin as a store of value
History shows that dominant monetary standards strike a balance between scarcity, trust, and usability. Silver gave way to gold; gold to fiat, each shift reflecting broader changes. Now, Bitcoin stands as the first scarce asset capable of global settlement at the speed of light. It’s more than a financial novelty; it could become a foundation for the next monetary era.
For pension funds entrusted with protecting generational wealth, the real question may no longer be if Bitcoin is the gold standard of the digital age, but whether it's time to pay closer attention.
Arash Nasri, Head of Corporate Treasury – Cartwright Corporate Treasury
