Liquidity, Value Storage, Yield and Maintenance

It was fascinating.  The sheer scale of the discovery, the colossal number of lives lost as an act of human hands.  The Sanxingdui finds from over 3000 years ago are rewriting history as we know it and made me wonder about the meaning of value as humans evolve.   The following is an excerpt from Gee Saw's blog, reprinted here with permission: 

Throughout history, various assets and commodities have been used as stores of value and wealth. The effectiveness and commonality of these stores have varied over time and across different cultures and economies. Here are some of the most historically significant ones:

Precious Metals: Gold and silver have been the most common and enduring stores of value throughout recent human history. They are durable, portable, and have intrinsic value in terms of utility. Gold, in particular, has been used as a form of currency, a store of wealth, and a medium of exchange for thousands of years due to its non-perishable nature (does not decay over long periods). The weakness of precious metals lies in its cost of verification, and cost to store in terms of security.

Land and Real Estate: Ownership of land and property has been a traditional way to store wealth. Land is finite and often increases in value over time due to increased human population and inflation of the base unit of account, making it a reliable asset for preserving wealth across generations. For land, it can also be costly to maintain in terms of taxes, and subject to intruders and trespassers that may develop a legal claim on your land. It’s liquidity is also subject to demand at the time.

Art and Collectibles: Rare artworks, antiques, and collectibles have been used as stores of value. These items can appreciate significantly in value and are often seen as a hedge against inflation and economic instability. They also add perceived culture and sophistication to the owner. The downside is, they could be easily damaged, forged, and subject to cost in maintenance.

Livestock: In many agrarian societies, livestock such as cattle, sheep, and goats have been used as a store of wealth. They are a form of mobile capital that can be consumed, bred, or traded. But easily decays and costly to maintain.

Grain and Agricultural Products: In ancient times, grain was a common store of value. It was a basic necessity that could be stored and traded. Other agricultural products like spices and silk were also used as stores of wealth due to their high value and demand. But easily decays and costly to maintain.

Jewelry: Jewelry made from precious metals and stones has been a portable and concealable store of wealth. It can be worn or easily transported and has often been used to store wealth in times of political or economic uncertainty. Liquidity issue.

Bonds and Debt Instruments: In more modern times, bonds and other debt instruments have become common stores of wealth. They provide a steady income through interest payments and can be sold on secondary markets. As an investment though, there is always a possibility that the issuer of the instrument becomes insolvent hence destroying the value in a way that is outside of the owner’s control.

Banknotes and Fiat Currency: With the advent of central banking, paper money or fiat currency became a common store of value. The stability of the issuing government and its economy determines the effectiveness of fiat currency as a store of wealth. Subject always to inflation and control by banks that hold the wealth as a debt in the owner’s credit.

Stocks and Equities: Shares in companies have become a popular way to store wealth, especially in the form of diversified portfolios. While more volatile than other assets, stocks have the potential for high returns over the long term. Same issue as bonds and debt.

Cryptocurrencies: In recent years, cryptocurrencies like Bitcoin have emerged as a new form of digital store of value. Their decentralized nature and limited supply have attracted investors looking for alternatives to traditional stores of wealth. This is a completely new type of store of value that has really just entered finance as a viable asset within the last 6 years. While first developed and minted in 2008, it entered international financial stage as politics in the United States became highly volatile since 2021. It’s dependency on a network and energy, especially for bitcoin, has been criticised.

The effectiveness of these stores of value and wealth can be influenced by factors such as physical decay, inflation, market demand, technological advancements, political stability, and changes in consumer behaviour. Each has its own set of risks and benefits, and the choice of which to use often depends on the individual’s or society’s needs, preferences, and the economic environment at the time.

then John Banque also commented: The assessment should take in time factor and risk. In fact, if you consider the basic necessities of life and indicators of quality of life, besides the immediate needs of air, water, food, shelter, the others are all intangible such as respect, security, and leisure. How long do you want to store your value? is it as long as possible? How liquid does it need to be and what kind of volume? Taking in these factors, one might come to the conclusion that minimum management cost and self custody are the main advantages of bitcoin. But to enable a safe transaction with an untrusted party, a trusted intermediary such as an exchange is still necessary.