Bitcoin’s shortage is one of the reasons that position it as a potential store of value. Bitcoin’s volatility can have a positive impact on its adoption, according to Fidelity.
Bitcoin is “an aspirational store of value” and “an insurance policy” in times of increasing financial uncertainty, according to a new report by Fidelity Digital Assets. This is the agency in charge of the custody and management of cryptocurrencies of Fidelity Investments, which handles around USD 7.3 trillion worth of assets.
The report that Fidelity published last July 28th explores the characteristics that position Bitcoin to play that role in the future. It also considers whether it is useful as a store of value.
Fidelity says that the main cryptocurrency meets the criteria for being classified as a store of value, but has not yet reached the necessary level of acceptance. The report says that “Bitcoin is relatively recent and in limited demand, compared to a global reserve of wealth like gold.”
Bitcoin’s volatility is one of the main arguments against it, according to the report. However, Fidelity says that bitcoiners oppose the idea that the path of a new asset from a stage of low adoption to one as a global store of value is linear. “A different perspective is that many participants initially learn about Bitcoin because of its volatility.”
Fidelity explains several reasons that make Bitcoin attractive as a potential store of value. First, it mentions its scarcity, a characteristic inherent to the limit of its supply, set at 21 million units. Furthermore, the supply of Bitcoin undergoes a reduction by 50% every 4 years. According to the report, the shortage of Bitcoin is in the protocol code since its creation.
The document also mentions a set of external factors that drive the demand for Bitcoin. Among them, the report mentions: “unprecedented levels of central bank and government intervention, record levels of low-interest rates, increasing supply of fiat currency, and the potential for inflation to rise, all of which have accelerated due to the COVID-19 pandemic and the global economic stoppage”.
Another favorable factor for the establishment of Bitcoin as a store of value is the transfer of wealth to millennials (those born between 1981 and 1996). According to a study by the real estate company Coldwell Banker, around USD 68 billion has passed into the hands of millennials, among whom there are 628,000 millionaires. This demographic segment is more open to digital investment alternatives than traditional products.
In its conclusions, Fidelity says that “Bitcoin’s inherent properties highlight the perspective that it has the potential to be a store of value, with complementary and interdependent components such as the Bitcoin network and its native asset, digitally scarce.” External factors that accelerate interest and investment in Bitcoin include “unprecedented levels of fiscal and monetary stimulus, of unknown consequence.”
Other studies dedicated to Bitcoin highlight that the increase in demand for, and adoption of, Bitcoin could facilitate the transition of that cryptocurrency, from the low volatility phase to a period of higher prices. After nearly three months with its price fluctuating between USD 9,000 and USD 10,000, Bitcoin recently recorded a bullish breakout that pushed it above USD 11,000.
By Alexander Salazar