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Fidelity Digital Assets argues that Bitcoin has the makings to become a steady asset, but that its price volatility right now is still a “silver lining.
In brief
Fidelity Digital Assets published a thesis paper, explaining why Bitcoin has all the makings to become a store of value.
Bitcoin's scarcity is one of the key factors that would allow it to retain value in the long run, the researchers noted.
They also argued that Bitcoin's volatility actually has a positive impact on its adoption.
Bitcoin meets all the main criteria of a store of value but has not yet officially acquired this status, said researchers at Fidelity Digital Assets in a thesis paper yesterday.
Titled “Bitcoin Investment Thesis: An Aspirational Store of Value,” the paper argued that Bitcoin is capable of becoming an “insurance policy” that may provide protection against various consequences of contemporary monetary practices.
“Many investors consider Bitcoin to be an aspirational store of value in that it has the properties of a store of value but has yet to be widely accepted as such," the document said.
A store of value, as the name suggests, is an asset that can save the value that was put in it over long periods of time. One of its main features is its ability to retain purchasing power and usefulness in the future.
While Bitcoin’s price volatility might seem like a direct opposite to “retaining value,” Fidelity Digital Assets pointed out that this is actually one of its “silver linings” as it helps bring attention, development and innovation to the cryptocurrency—at least in its early years.
Recently, Morgan Creek Digital co-founder Anthony Pompliano also echoed this sentiment during his heated debate with Peter Schiff, arguing that Bitcoin’s volatility is a double-edged sword that can be both detrimental and advantageous for investors.
Four reasons why Bitcoin can become a store of value
One reason why Bitcoin might become a store of value is its “unforgeable digital scarcity,” noted Fidelity. Since Bitcoin’s emission is limited to 21 million coins at the protocol level, Bitcoin can be considered a deflationary asset thanks to its hardcoded immunity to oversaturation.
“Scarcity is the key characteristic cited in reference to a good store of value as it is essential for protecting against the depreciation of real value in the long run,” the document stated.
The authors highlighted a second supporting factor, that today’s record-low interest rates in traditional finance, as well as unprecedented levels of global monetary stimulus, could have “unknown consequences” and are currently “adding fuel to the fire of awareness and adoption” of Bitcoin.
“Longer-term drivers include ‘slow and steady’ inflation and the great wealth transfer to a millennial demographic that has a favorable opinion on digital assets,” the authors noted, adding two more reasons.
Summarizing, Fidelity Digital Assets acknowledged that while Bitcoin's success as a store of value is not guaranteed, the cryptocurrency has all it needs.
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