- Fidelity praises Bitcoin saying that “monetary network effects” are unbeatable.
- It says Bitcoin’s first technological breakthrough was not as a superior payment technology but as a superior form of money.
On Monday, January 31, Fidelity Digital Assets, the crypto arm of Fidelity Investments has released a new report dubbed “Bitcoin First”. The crypto giant shares its views on Bitcoin and why it receives different treatment from all other digital assets.
The report starts with a basic and non-technical view of how the Bitcoin ecosystem works. It further explains Bitcoin’s “enforceable scarcity” and why Bitcoin’s “monetary network effects” are unbeatable. Fidelity writes:
Bitcoin is fundamentally different from any other digital asset. No other digital asset is likely to improve upon bitcoin as a monetary good because bitcoin is the most (relative to other digital assets) secure, decentralized, sound digital money and any “improvement” will necessarily face tradeoffs
The Fidelity report also explains that one of the major areas where Bitcoin derives its value is scarcity. Bitcoin’s fixed supply also brings the cryptocurrency the ability to become a store of value.
Fidelity also believes that Bitcoin’s scarcity comes from its decentralization and its censorship-resistant characteristics. The report adds: “These characteristics are hardcoded into bitcoin and almost certainly will never be changed because the same people that ascribe value to bitcoin and own it have no incentive to do so. In fact, network participants are incentivized to defend these very characteristics of a scarce asset and an immutable ledger”.
Bitcoin – A superior form of money
In the latest report, Fidelity mentions that what makes Bitcoin special is not its technology framework, rather it refers to BTC as a superior form of money. This is unlike other analysts and governments who refuse to recognize Bitcoin as a form of money. It notes:
Traditional investors typically apply a technology investing framework to bitcoin, leading to the conclusion bitcoin as a first-mover technology will easily be supplanted by a superior one or have lower returns. However, as we have argued here, bitcoin’s first technological breakthrough was not as a superior payment technology but as a superior form of money.
As a monetary good, bitcoin is unique. Therefore, not only do we believe investors should consider bitcoin first in order to understand digital assets, but that bitcoin should be considered first and separate from all other digital assets that have come after it.
In the report, Fidelity also touches down on the risks associated with the use of Bitcoin. However, it adds that this is common to all cryptocurrencies and not just Bitcoin. Fidelity highlights some of the risks such as “Protocol Bugs,” “Nation-State Attacks,” “Growth of the Digital Asset Ecosystem,” and “Potential Instability of Traditional Macro Conditions.
Fidelity also praises bitcoin’s governance structure saying that it offers a higher level of decentralization.
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