One of the biggest tragedies in the history of cryptocurrency has undoubtedly been Bitcoin's transition from money to pure store-of-value (SoV). Not because there's anything wrong with being a pure SoV, but because, ironically, pursuing such a thing led to it actually killing many of its best value-storing properties.
There has been some confusion as to what SoV even means, and it has been conflated with positive market price performance. They aren't the same thing at all. A memecoin can do very well in price terms for a period of time, but that doesn't make it an SoV.
To store anything efficiently, think about what it has to do well. Apply this to anything: money, food, ideas, and so on. What makes something a good store-of-anything is that you can put that thing into it, and when you want to access that thing later, it's still intact.
But once that basic prerequisite of "1 unit goes in, you can get 1 unit out" is satisfied, what makes a good store is how efficiently it does it: how quickly, easily, and cheaply can you get the item in and out of storage.
Banks, historically, have been stores of value. You put money in, you get the same or more out later (even though inflation and all kinds of financial ills have harmed this). But if you couldn't get your money out, on demand, when you wanted it, you'd start trying to pull as much value out as you could, only leaving whatever you could afford to lose in there.
When Bitcoin started to lose efficiency for payments, its SoV properties started to deteriorate.
If a user wanted to receive, or exchange, value, using Bitcoin meant high fees and long wait times. So even if they did end up having a significant nest egg in Bitcoin, the inability to convert potential value (money) to actual value (the goods and services they wanted) prevented them from actually going all-in.
This is why you've seen some Bitcoiners like Michael Saylor talking about how Bitcoin complements the dollar. They're right: the dollar stores value efficiently for short-term access, but deteriorates long-term, while Bitcoin is inconvenient for short-term access but has a limited supply for long-term holding. But each on its own is an incomplete SoV.
In the real world, people do all kinds of things with their money: lend, borrow, invest, and more. Global economies have been built on access to more than just savings and payments.
When Bitcoin can't be directly utilized in more complex financial applications due to programmability and other limitations, users have a trade-off at hand: miss out on many financial applications, or use something other than Bitcoin.
Another side effect of this lack of DeFi access is the proliferation of Bitcoin on trusted second-layer wrapping mechanisms, bridges, and L2s like Citrea. All of these provide significantly more friction and harm the base decentralization value proposition of Bitcoin to begin with, thus harming SoV.
The lack of Bitcoin's ability to evolve its privacy has resulted in a diminishing of its ability to practically store value.
Yes, in theory you can continue to enjoy the same basic SoV properties for whatever money you choose even if everyone in the world can see what you're doing. But in practice, lack of privacy now carries an extra consequence. You can't access your value store for whatever reason at whatever time without potentially triggering some kind of reaction from outside observers. This places practical (though not literal) limitations on your ability to use your money.
And finally, due to a combination of the above (but mostly restriction on payments/scaling), an over-abundance of custodial exposure has killed Bitcoin's SoV properties. Yes, who knew that having funds controlled by others prevents your unilateral ability to access the value you've stored.
But, the biggest consequence of custodians has been paper Bitcoin.
@thedessertlinux/the-coming-paper-bitcoin-crisis-esg
Because custodians can keep two separate ledgers (one of Bitcoin they hold and the other of Bitcoin they owe to customers), and because a mismatch in those two numbers essentially equals free money, they always will inflate the supply of paper Bitcoin.
We saw this with the flash crash caused by Bithumb's big mistake recently, where they accidentally created over a half-million Bitcoin, almost as many as Strategy holds, and credited them to users.
Now while we saw the most dramatic example of this just now, it can be all but guaranteed that every major custodian that doesn't have strict regular audits is routinely inflating the paper Bitcoin supply well beyond that of the actual supply. It makes economic sense. There is no reason an exchange would refuse to do so, and incur additional unnecessary costs in order to provision liquidity.
My prediction is that, over the next decade, we will increasingly see that assets that don't make the above mistakes will perform much better as an SoV than those which do. I also believe that we will see the myth that Bitcoin is the best SoV in the world will begin to finally wind down.
