Fidelity published a report last January on why investors should consider bitcoin (BTC -0.34%) apart from other digital assets. Fidelity highlighted several qualities that Bitcoin has that make it more attractive as a store-of-value, but also because it is more secure and decentralized than other cryptocurrencies. This is more important than ever after 2022.
2022: In a nutshell
This past year was full of scandal and turmoil, as evidenced by the implosion and bankruptcy of crypto exchange FTX and Terra stablecoin. If 2022 could be reduced to one headline it would likely read “Centralized Players Exploit Decentralized Assets” or something similar.
Individuals and businesses realized that there was money to be made due to the rapid growth of cryptocurrency and the increased interest from investors. They created their own cryptocurrency tokens and extended credit to businesses who didn’t merit it. Sometimes, they even took home investor dollars.
This is the biggest problem. This is the ultimate problem. Cryptocurrencies should be distributed and free from any control by one person or company. Fidelity’s report revealed that Bitcoin is the preferred digital asset for investors. It has other inherent qualities that should make it more attractive, such as decentralization and security.
This paper is 26 pages long and contains many compelling reasons why Bitcoin should be treated separately from other cryptocurrencies. Here are the highlights of the paper by Fidelity analysts.
It is in a class all its own
Unmatched security and decentralization are some of Bitcoin’s distinguishing characteristics. Many cryptocurrencies have emerged since the creation of Bitcoin, but most have abandoned security and decentralization to speed up transaction times. Many decisions, such as how fast new tokens are released or what consensus mechanism will be used, are left up to developers and founders.
Bitcoin isn’t controlled by any single person or entity. This is a positive quality given the problems that plagued many networks in 2022. Bitcoin’s global network of nodes makes it far more secure than any of its competitors.
Fidelity analysts came to the conclusion that Bitcoin could be the “primary money asset”. This is due to its unique characteristics, namely its scarcity as well as its desireability. Fidelity suggested Bitcoin’s 21 million coin supply and increasing network effect could make it the preferred digital investment for investors.
Bitcoin’s “first-mover advantage” (it was the only cryptocurrency for quite some time), made it the “most secure and most decentralized network.” Fidelity claims that these qualities incentivize users to choose the Bitcoin network over other networks. Fidelity analysts believe that the legitimacy of Bitcoin will increase if more people choose it over other cryptocurrencies. This will then make it more valuable.
Lessons to learn
Now that 2022 is over, it is time for investors to take action. While many of these assets claim to be cryptocurrency, they actually look more like Ponzi schemes.
It is unlikely that there will ever be another Bitcoin. Therefore, it should be valued more than any other digital asset. Blockchain investors can be confident that the blockchain will be resilient to central actors that change, but it will likely become the primary digital asset in coming years.