Some cryptos enjoyed a small bounce this week, but the “winter” is far from over with prices well below last year’s highs.
The price of bitcoin is down 44% from its highs. Ethereum’s price hovers 43%, BNB 45%, cardano 65%, XRP 70%, and solana 58% lower from their last year highs.
Meanwhile, the world’s largest asset manager Fidelity released a paper that calls bitcoin a “superior form of money.” It argues that bitcoin is lightyears ahead of competition and no crypto is likely to catch up to it “as a monetary good.”
“Bitcoin is fundamentally different from any other digital asset. No other digital asset is likely to improve upon bitcoin as a monetary good because bitcoin is the most (relative to other digital assets) secure, decentralized, sound digital money and any “improvement” will necessarily face tradeoffs,” the paper wrote.
[Ed note: Investing in crypto is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]
Bitcoin
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Zooming out
Fidelity’s bullish case for bitcoin rests on a few key reasons:
- First, the “network effect”. Bitcoin has the first mover advantage, and it already offers the largest, most secure, most decentralized, and most liquid network. But as demand for bitcoin and, in turn, its price increases, the network will cement its lead for good. That will boost profits, incentivising bitcoin miners to invest more in computing power. More investment will lead to greater security, which in turn will make the asset more attractive, pulling in more users and investors. Eventually, bitcoin will become a dominant network in the same way Facebook has dominated social media. In other words, Fidelity expects bitcoin to be the Facebook of the crypto world.
- Second, bitcoin’s lead makes it difficult for any challenger to emerge. Any potential competitor would have to differentiate itself by sacrificing decentralisation or security. Meanwhile, a competitor that simply copied bitcoin’s code would fail as there will be no reason to switch from the largest monetary network to an identical but much smaller one.
- Bitcoin possesses the most immutable “monetary policy” because its supply is finite. There will only ever be 21 million bitcoin. Combined with its track record, that gives the currency credibility in terms of holding its value that no digital asset can match.
New investors should consider bitcoin first
Fidelity’s analysts suggest other digital assets can fulfil different needs, and they will continue to exist. But bitcoin will likely emerge as the ultimate digital store of value. And investors who want to dip their toes in crypto should consider bitcoin first.
“Bitcoin’s first technological breakthrough was not as a superior payment technology but as a superior form of money. As a monetary good, bitcoin is unique. Therefore, not only do we believe investors should consider bitcoin first in order to understand digital assets, but that bitcoin should be considered first and separate from all other digital assets that have come after it,” the paper wrote.
That said, tread lightly.
Bitcoin may well come out as a long-term winner in the crypto universe. But with central banks slamming on stimulus breaks and raising rates to rein in inflation, risk assets, including crypto could face strong headwinds this year.
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