- Fidelity released a sequel to its Jan 2022 report on Bitcoin.
- The report claimed that investors should consider BTC in a class of its own.
- BTC price continued its downtrend for the fourth consecutive day on Oct. 11.
NEW DELHI (CoinChapter.com) — Financial services firm Fidelity Investments released a report highlighting why investors should consider Bitcoin (BTC) as an investment option over other cryptocurrencies.
Here are seven reasons why the firm, which manages $4.47 trillion in assets, believes BTC is an asset in a class of its own.
1. Bitcoin’s Network Effect
Fidelity highlighted the impact of the monetary effect on Bitcoin prices. In detail, the network effect is a phenomenon where the value of a network increases with the increase in user numbers. Bitcoin’s scarcity attracts more investors, which in turn attracts more buyers.
Fidelity dubbed it a “reflexive” property of monetary networks. Moreover, the report claimed the property was more pronounced for Bitcoin since it included miners and passive holders. As more people choose BTC, demand for the token increases.
Increased prices incentivize crypto miners to increase their computing power, enhancing security. The increased security attracts more buyers, forming a self-serving cycle.
2. Substituting Bitcoin Is Like Reinventing The Wheel
Moreover, Fidelity compared Bitcoin to the wheel, a nearly pre-historic invention that remains useful. The report noted that it was impossible to reinvent the wheel.
Never in human history had the problem of digital scarcity and true peer-to-peer electronic cash been solved until Bitcoin was invented. Solving this problem was not merely an incremental improvement, but a leap forward or an unlocking of the puzzle of how digital scarcity could exist.
Additionally, the investment firm noted that even a competitor copying Bitcoin’s code would fail since traders would have no reason to switch to an identical but smaller network.
Bitcoin’s dominance, or its share of the total crypto market cap, has dropped, but only because of the growth of the crypto ecosystem. Despite over 23,000 crypto tokens in the market, Bitcoin remains the dominant force in the market, often accounting for half of the market cap.
3. Whatever Doesn’t Kill You…
Fidelity noted that Bitcoin is likely future-proof, citing the Lindy Effect, a theory stating, “The longer some non-perishable thing survives, the more likely it is to survive in the future.”
The report noted that Bitcoin has already survived multiple market crashes, a code fork, regulatory bans in multiple countries, bankruptcy of multiple crypto-related firms, association with multiple ransomware attacks, etc.
Hence, Fidelity speculated that Bitcoin will likely survive whatever the future throws at it.
4. Security A Key Feature Of Bitcoin
The investment firm noted that Bitcoin solved two of the three problems of the blockchain trilemma: security and decentralization.
The blockchain trilemma refers to Vitalik Buterin’s statement that a decentralized database can only deliver on two of three guarantees at one time: decentralization, security, or scalability.
Regarding the hash rate, Bitcoin is the most secure digital asset, far outpacing other proof-of-work blockchains. It is difficult to compare BTC’s hash rate with other blockchains due to different algorithms.
However, the computing power required to alter the Bitcoin network’s consensus far exceeds other similar blockchains. Furthermore, Bitcoin remains one of the most decentralized networks, as indicated by the holder distribution and increased active addresses.
5. Bitcoin And Internet
Meanwhile, Fidelity compared Bitcoin to the Internet and its base layer, TCP/IP. The report highlighted that the TCP/IP layer is an open-source base layer, on top of which users build applications and create content.
Though users can own applications or shares of internet firms like Google, owning even a part of the internet’s base layer is impossible. However, for Bitcoin, users can own part of the base layer and “can be relatively agnostic about what specific applications to build on the base layer.“
Moreover, Bitcoin’s security could attract more developers to the blockchain network.
6. Bitcoin Dominates The Competition
In 2015, Bitcoin became embroiled in a “civil war” when some developers proposed increasing the network’s block size to 1MB. Several users and developers opposed the move, resulting in a hard fork.
As a result of the hard fork, several new blockchains and tokens came into existence, including Bitcoin Cash (BCH).
However, Bitcoin continues to dominate BCH and other competitive tokens. For instance, the BTC market cap is over ten times BCH’s, indicating Bitcoin’s importance as a monetary good rather than a payment system.
7. Bitcoin Has Carved A Role For Itself And Will Continue To Do So
Additionally, Fidelity noted in its report that Bitcoin has found a place for itself as a store of value in the still-evolving digital ecosystem. However, the firm stated it was difficult to ascertain how Bitcoin would position itself as the system evolves in the future.
The blockchain platform’s scarcity and BTC’s disinflationary nature add to the cues in favor of Bitcoin.
The ability for most of the other digital assets to fulfill some other necessary use case still remains to be seen in our opinion, although there has been significant progress over the past few years.
The report stated
As a result, BTC might likely continue to be a part of investors’ portfolios, depending on how risk-averse or not market participants are.
Fidelity concluded its report by stating that Bitcoin’s breakthrough was not as a payment technology, as originally intended, but as “a superior form of money.”
Not only do we believe that investors should consider bitcoin first to understand digital assets, but that bitcoin should be considered first and separate from all other digital assets that have followed it.
The report concluded.
BTC Price Flatlines Below $27,000
Meanwhile, BTC price dropped over 3.4% to breach below the $27,000 price level on Oct. 11, reaching a daily low near $26,530. Bitcoin price continued its downtrend for the fourth consecutive day. An increase in selling pressure could see BTC’s price drop to the support near $26,700.
Conversely, a rally would require Bitcoin price to break above the 100-day EMA (blue wave) resistance near $27,420.
The RSI for the token remained neutral, with a value of 44.59 on the daily charts.
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