Fidelity explains why we live in a Bitcoin-driven world, plain and simple

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SPOILER ALERT: Asset Manager Fidelity believes that “bitcoin should be considered first and separated from all other digital assets that came after it.” That’s huge, given that the Fidelity Digital Assets division’s website opens with “We envision a future where all types of assets are natively issued on blockchains or represented in tokenized format.” This multi-chain focused company acknowledged Bitcoin’s inherent superiority in its latest report.

Related Reading | Google Finance now lists Bitcoin first ahead of major Forex currencies

According to Fidelity, “Bitcoin is best understood as a monetary good” and not as a technology. This is the key. They also “believe that bitcoin is highly unlikely to be replaced by an ‘enhanced’ digital asset for several reasons.” The rest of the document is more or less about stating and analyzing these reasons.

The Fidelity report is exactly what Paul Krugman needs to understand the difference between Bitcoin and the rest of crypto. It starts with a fairly basic, non-technical overview of how the Bitcoin network works. He explains its “enforceable scarcity” and how Bitcoin’s “monetary network effects” are unbeatable. He goes so far as to assert that “any subsequent monetary good would amount to ‘reinventing the wheel’.”

It explains classic Bitcoin-related concepts like “The Blockchain Trilemma” and its trade-offs. He goes into “The Lindy Effect, also known as Lindy’s Law, is a theory that the longer a non-perishable thing survives, the more likely it is to survive in the future.” And much more.

How did Fidelity arrive at a Bitcoin-First position?

This paragraph summarizes the main thesis of the report:

“Investors should hold two distinct frameworks when considering investing in this digital asset ecosystem. The first framework examines the inclusion of bitcoin as an emerging monetary good, and the second considers the addition of other digital assets that exhibit venture capital-like properties.

A question arises, why does Fidelity consider Bitcoin a monetary good in the first place? They list four reasons:

A monetary good is something that has a value attributed to it beyond its usefulness or consumption value. While bitcoin’s payment network certainly has utilitarian value, people also place a higher monetary value on bitcoin tokens.

One of the main reasons why investors attribute value to bitcoin is its scarcity. Its fixed supply is why it has the ability to be a store of value.

Bitcoin’s scarcity is underpinned by its characteristics of decentralization and censorship resistance.

These characteristics are hard-coded into bitcoin and will almost certainly never be changed because the same people who value bitcoin and own it have no incentive to do so. In fact, network participants are incentivized to champion these very characteristics of a scarce asset and an immutable ledger.

BTC price chart for 2022-02-01 on Exmo | Source: BTC/USD on TradingView.com Risks and Possible Scenarios

The report does not cover any subject in depth, but it is comprehensive. Fidelity covers block warfare and even does an Ethereum case study. They say that the monetary policy of ETH “has changed and should change again”. The report considers two possible scenarios; “A multi-channel world” and “A win-win world or the most”. Either way, Bitcoin is perfectly positioned to dominate.

Related Reading | Longtime Technician, Fidelity Director Breaks Down Bitcoin Correction

On the risk side, they consider a few, but they specify that they affect all digital assets. Fidelity considers “protocol bugs,” “attacks on nation states,” “digital asset ecosystem growth,” and “potential instability of traditional macro conditions.” In the end, Fidelity concludes:

“Bitcoin’s proof-of-work algorithm, governance structure, and fair launch created the foundation for a decentralized project with minimal trust required. Other tokens have alternative consensus mechanisms, governance structures, and token launches, which often reduce their level of decentralization.

Real conclusion of Fidelity

We must reproduce the final paragraph of the report, the actual conclusion, in its entirety:

“Traditional investors typically apply a technology investment framework to bitcoin, leading to the conclusion that bitcoin as a cutting-edge technology will easily be supplanted by superior technology or have lower returns. However, as we have explained here, bitcoin’s first technological breakthrough was not a superior payment technology, but a superior form of money.As a monetary good, bitcoin is unique.Therefore, not only do we believe investors should first consider bitcoin in order to understand digital assets, but that bitcoin should be considered first and separated from all other digital assets that came after it.

Microphone drop.

Featured image by Kanchanara on Unsplash | Charts by TradingView

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