The value of bitcoin is driven by the scarcity contemplated in its protocol.
Bitcoin is 100% verifiable, against the risk of counterfeit gold or fiat currencies.
A study published by Fidelity Digital Assets on Monday, January 31, states that investors need to consider bitcoin (BTC) as a superior form of money, which is fundamentally different from other cryptocurrencies.
The study He argues that “no other digital asset is likely to surpass bitcoin as a monetary asset, because bitcoin is the most secure, decentralized, and sound digital money,” relative to other cryptocurrencies. Any improvement that is made in another cryptocurrency to match it with bitcoin, would necessarily imply the appearance of limitations and commitments in that asset, the research affirms.
According to Fidelity, “Bitcoin is best perceived as a monetary asset” and not as a technology. New investors seeking exposure to cryptocurrencies need to consider bitcoin separately from other cryptocurrencies, the study highlights. “Other projects should be evaluated from a different perspective than bitcoin,” the authors note.
Regarding the convenience of considering cryptocurrencies other than bitcoin as an investment alternative, the study states that, although bitcoin is a category of assets in itself, its success is not mutually exclusive with the rest of the cryptocurrencies. “Rather, the rest of the digital asset ecosystem can fill other requirements or solve other problems that bitcoin simply can’t solve,” the study says.
However, bitcoin should be considered as an entry point for investment managers of traditional portfolios seeking exposure to digital assets, the research highlights.
Bitcoin as a monetary asset
The authors made a comparison of bitcoin with gold and with fiat currencies. The study defines a monetary good as one that is valued for its ease of being exchanged for other goods, and not for its consumption or use.
This leads to the question, why are some things treated as a monetary good while others are not? Economists and historians suggest that the answer lies in a series of characteristics associated with the concept of “good money”. The more of these characteristics a good possesses, the better it can serve as money or the more likely it is to arise or be accepted as money.
Fidelity Digital Assets.
The chart below compares bitcoin to gold and fiat currencies on seven attributes that have been associated with good or sound money. These characteristics are durability, severability, fungibility, portability, verifiability, scarcity, and performance.
As can be seen in the table, the study grants bitcoin 6 of the 7 attributes that a monetary good should have, followed by gold, with four of the seven attributes. Fiat currencies are in last place with 2 attributes of the 7 considered.
Regarding the only unfavorable point for bitcoin, its performance as money, the study points to the short history of bitcoin, compared to the better performance as money and the longer history of gold. Observing only the quantitative aspect, bitcoin has 84% positive attributes as a monetary good, while gold reaches 56%, or 4 out of 7 positive attributes. Fiat currencies are the losers in this comparison with only 2 out of 7 positive attributes, 28% or three times less than those achieved by bitcoin.
At the beginning of this year, the US investment bank Goldman Sachs stated in a communication to its clients that bitcoin will continue to take away space from gold as a reserve of value, a fact reported by CriptoNoticias. The investment bank also predicted a price of $100,000 for BTC in the next five years.