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Fidelity, the third-largest asset manager in the world with a whopping $4.24 trillion in discretionary assets under management (AUM), is a staunch advocate of Bitcoin (BTC). Its subsidiary, Fidelity Digital Assets (FDA), is entirely focused on the cryptocurrency investing market.
FDA offers a unique perspective in its most recent research paper, highlighting the need to evaluate Bitcoin differently from other digital assets while constructing investment portfolios in the cryptocurrency industry. Chris Kuiper and Jack Neureuter, the report’s authors, state that “Investors should hold two distinctly separate frameworks for considering investment in this digital asset ecosystem.”
The first framework places a focus on Bitcoin and recognizes it as a newly emergent financial asset. The inclusion of additional digital assets that have characteristics similar to venture capital investments is explored by the second framework, in contrast.
The paper emphasizes that Bitcoin’s primary value proposition is that it serves as a valuable store of wealth and a limited supply of money. Unlike many other digital assets, BTC’s main objective was to address the problems of digital scarcity and to develop a censorship-resistant type of digital currency.
The paper makes the case that given the unavoidable trade-offs between decentralization and security, alternative blockchains are unlikely to exceed Bitcoin as a store of value. The report’s authors assert that Bitcoin is now the most secure and decentralized monetary network, essentially barring alternative networks that have functions other than serving as a medium of exchange.
Bitcoin’s resilience, or the Lindy Effect, is a result of its enormous network effects and its shown capacity to endure threats and attacks. The globalization of the larger digital asset ecosystem and the potential volatility of conventional macroeconomic circumstances are the two main tailwinds driving Bitcoin’s returns, according to the analysis. Furthermore, compared to other crypto assets, Bitcoin offers higher rewards with lesser risk.
Non-Bitcoin digital assets, on the other hand, are thought to have higher risks and rewards akin to venture capital investments. According to the research, “Allocating to non-Bitcoin tokens is often done with a venture capital-like mindset.”
The paper finds that cryptocurrency investors should evaluate Bitcoin separately as a financial asset before evaluating other, higher-risk digital assets that might supplement their portfolio due to the particular risk and return profile of Bitcoin. With this method, it is possible to examine Bitcoin and other digital assets’ prospective advantages and disadvantages in the ever-changing cryptocurrency market more precisely.