- Bitcoin has “good qualities” as money, and traditional investors should consider putting it in their portfolios, Fidelity Digital Assets said.
- The scarcity and verifiability of cryptocurrency gives it an edge over gold and fiat money.
- Bitcoin’s dominance has diminished as the rest of the digital asset ecosystem has grown.
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Bitcoin’s scarcity is among the characteristics that make digital currency a “good” currency, and traditional investors should use it as a gateway to digital assets, a subsidiary of Fidelity Investments has said.
In a 26-page report released Monday, Fidelity Digital Assets said bitcoin is fundamentally different from any other digital asset, and that its first technological breakthrough was not as a superior payment technology “but as a superior form silver”.
“No other digital asset is likely to improve bitcoin as a monetary good, because bitcoin is the most secure, decentralized and sound digital currency (compared to other digital assets) and any “improvement “will necessarily face trade-offs,” he said.
The cryptocurrency has many of the “good qualities” of money – “combining the scarcity and durability of gold with the ease of use, storage and transport of fiat (even improving it)”, wrote research director Chris Kuiper and research analyst Jack Neureuter. .
Analysts have noted that, like other monetary assets, bitcoin is not a business, pays no dividends, and has no cash flow. Therefore, its value should be derived from its ability to better fulfill the characteristics of a monetary good compared to traditional alternatives.
Bitcoin’s advantage over gold and fiat currency is its verifiability. Precious metal and silver issued by central banks have been counterfeited. And although gold can be verified, this can only be done by “tedious assaying”.
Meanwhile, bitcoin’s enforceable scarcity, with a coded supply cap of 21 million bitcoins, is one of its biggest features and another advantage over gold. Fidelity said bitcoin should be viewed primarily as a “superior monetary good.”
“The fact that the market has shown a preference for bitcoin, which is slower as a payment system compared to other digital assets and blockchains, indicates that the market is currently valuing a highly secure and decentralized store of value rather than another payment network,” the analysts said. .
Bitcoin carries risks for investors, including the potential for code vulnerabilities and opposition from major countries to the growth of a digital asset ecosystem.
But some investors may be underestimating bitcoin’s potential returns relative to other digital assets, according to the report.
“If investors are looking for a digital asset as a monetary good, capable of acting as a store of value, they will naturally choose the one with the largest, most secure, most decentralized and most liquid network,” Fidelity noted.
Bitcoin’s dominance recently stood at around 41% of the overall crypto market value, followed by Ether, the native token of the Ethereum blockchain. While that’s down from 100%, Fidelity said it’s “not due to its small size, but rather the rest of the growing ecosystem.”