Fidelity Digital Assets brought new light to the subject of cryptocurrency investments in its September 2023 study, focusing particularly on Bitcoin. Authored by Chris Kuiper, Director of Research, and Jack Neureuter, Research Analyst, the report meticulously dissects why Bitcoin should be considered as a standalone asset class, separate from other digital assets.
Bitcoin’s Unique Features
The Fidelity report highlights the unique aspects of Bitcoin in comparison to traditional investment options like gold and stocks. One of the salient features is its limited supply, capped at 21 million coins. This scarcity mimics the finite nature of precious metals, making Bitcoin a potential hedge against inflation.
“Bitcoin is better than gold,” the report states, when it comes to fulfilling specific portfolio requirements.
Bitcoin’s fixed limit sets it apart from other digital assets that have indefinite supply mechanisms, offering an alternative for portfolio diversification.
The report also speaks of Bitcoin’s resistance to “innovative destruction,” a term often associated with emerging technologies that lose relevance due to newer, more efficient competitors. Bitcoin has managed to remain a dominant force in the industry, despite the introduction of various other digital currencies and blockchain projects.
“Its decentralized nature, not governed by any single entity, gives it resilience against systemic risks that could otherwise plague centralized financial systems,” the report explains.
Bitcoin as a Store of Value
Fidelity’s report delves deeper into Bitcoin’s role as a store of value, highlighting its mathematical underpinning and cryptographic security features. While gold has been the traditional go-to asset for storing value, Bitcoin offers certain technological advantages that cannot be ignored.
For instance, it can be easily transferred across borders without the need for intermediaries, and its ownership can be proven unequivocally thanks to blockchain technology.
“It appears at this point that Bitcoin has found a role in the digital asset ecosystem as a scarce, store of value asset at the very least,” the report states.
Regulatory Considerations
The Fidelity report emphasizes the importance of regulatory measures in the crypto industry. While regulatory scrutiny can be a hurdle, it can also serve as a catalyst for attracting mainstream investors.
“Regulatory measures can drive away the bad actors while providing a framework that attracts mainstream investors,” the report notes.
A well-defined regulatory framework, including Anti-Money Laundering (AML) and Know Your Customer (KYC) procedures, can help in making the crypto space more secure and trustworthy, potentially attracting more risk-averse investors.
Potential Risks
The Fidelity report acknowledges the potential risks associated with Bitcoin, including volatility and the risk of technological obsolescence. Bitcoin’s price is subject to rapid fluctuations, and there is always the possibility of a more efficient or secure technology displacing it.
However, the report also highlights Bitcoin’s first-mover advantage and the strong community of developers and miners that support it. This combination contributes to its long-term viability as a valuable digital asset.
The Fidelity Digital Assets report makes a strong case for considering Bitcoin as a separate asset class, highlighting its unique features and potential as a store of value. While the report is optimistic about Bitcoin’s prospects, it acknowledges the need for ongoing research and monitoring of its performance.
