Saturday, August 1, 2020

Fidelity publishes Bitcoin investment thesis

Key facts:
Bitcoin's shortage is one of the reasons that position it as a potential store of value.
Bitcoin's volatility can have a positive impact on its adoption, says Fidelity.

Bitcoin is "an aspirational store of value" and "an insurance policy" in times of increasing financial uncertainty, according to a new report by Fidelity Digital Assets, the agency in charge of the custody and management of cryptocurrencies at Fidelity Investments. It handles about $ 7.3 trillion in assets.

The report published on Tuesday, July 28, explores the characteristics that position Bitcoin to play that role in the future, and considers whether it is effectively used today as a store of value.

Fidelity says that the leading cryptocurrency meets the criteria for being classified as a store of value, but has not yet reached the necessary level of acceptance. "Today, bitcoin is relatively recent and in close demand, compared to a global reserve of wealth like gold," says the report.

Bitcoin's volatility is one of the main arguments used against it, the report notes. But he argues that bitcoiners are opposed to the idea that the trajectory of a new asset from a stage of low adoption to a global store of value is linear. "A different perspective is that many participants initially learn about bitcoin because of its volatility."

Fidelity explains several reasons that make bitcoin attractive as a potential store of value. The first one he mentions is his scarcity, an inherent characteristic of the supply limit set at 21 million. Furthermore, the annual supply of bitcoin is reduced every 4 years by 50%. "The shortage of Bitcoin was encoded in the protocol when it was created," the report notes.

Then the document refers to a set of external factors, drivers of the demand for bitcon. Among those external factors, the report mentions: “unprecedented levels of central bank and government intervention, record levels of low interest rates, increasing supply of fiat currency, and the potential for inflation to take off, all of which have been accelerated by the pandemic and economic unemployment ».

Another favorable factor for a bitcoin establishment as a store of value is the transfer of wealth to millennials (those born between 1981 and 1996). According to a study by the Coldwell Banker publication, some 68 billion dollars have passed into the hands of millennials, among whom there are 628,000 millionaires. This demographic segment is more open to digital investment alternatives compared to traditional products.

In his conclusions, Fidelity says that "Bitcoin's inherent properties highlight the perspective that it has the potential to be a store of value, with complementary and interdependent components such as the Bitcoin network and its native asset, digitally scarce." External factors that accelerate interest and investment in bitcoin include "unprecedented levels of fiscal and monetary stimulus, of unknown consequence."

Among other recent studies dedicated to Bitcoin, CryptoNews published a Bloomberg study in early July that highlighted that the increase in demand and adoption of bitcoin, could facilitate the transition of that cryptocurrency, from the phase of low volatility to a period of higher prices. After nearly three months with its price fluctuating in a band between $ 9,000 and $ 10,000, bitcoin recorded a bullish breakout last weekend that has pushed it above $ 11,000.