Bitcoin’s price is down by almost half from the record level it hit in November.
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The world is awash in cash and cryptocurrencies, but Bitcoin is special, with the potential for significant price gains, according to a new report from Fidelity.
Bitcoin is a scarce “monetary good,” superior in many ways to other cryptos, gold, and even government-issued money like the dollar, the firm said. “We would expect Bitcoin to be a lot higher five to 10 years from now,” Chris Kuiper, director of research at Fidelity Digital Assets and author of the report, told Barron’s in an interview.
Overseeing more than $11 trillion in assets, including $4.2 trillion under management, Fidelity is a giant in the mutual fund, brokerage, and asset-management space. It is now dipping its toes into Bitcoin and has financial interests in cryptocurrencies and blockchain technology more broadly.
The company is building out an institutional custody business for Bitcoin and developing other crypto services, including trading and collateralized lending. It is also developing crypto products for retail investors, such as exchange-traded funds.
Fidelity’s application for an ETF based on the spot price of Bitcoin was recently rejected by the Securities and Exchange Commission. But the firm has launched a Bitcoin ETF and mutual fund in Canada, and it is seeking SEC approval for two crypto/metaverse ETFs.
As Fidelity sees it, the bull case for Bitcoin is that it’s a “store of value asset in an increasingly digital world.” No other blockchain network or token can match Bitcoin’s advantages as the most “secure, decentralized, sound digital money,” Kuiper wrote. While other digital assets and networks have some advantages—-notably Ethereum, with its programmable features–trying to improve on the Bitcoin network means making a trade-off in speed, scalability, or security.
While other tokens and networks battle it out, Kuiper said, Bitcoin’s advantage as a store of value reduces its comparative risk. And while other tokens may have more potential for price gains, Bitcoin should hold its value as more people adopt it worldwide.
Bitcoin, in his view, also has advantages over gold. Both are scarce, with limits on the amount that can be mined. Bitcoin is more easily transported and stored and is impervious to counterfeiting, due to the security of its underlying blockchain network, he argues. Bitcoin’s supply-inflation rate of 1.8% is equal to gold’s annualized increase in supply, he notes.
Macro conditions may also favor Bitcoin, due to rising levels of debt in the legacy financial system, negative real interest rates, and the potential for traditional currencies to lose purchasing power, Kuiper argues.
To be sure, none of these arguments are particularly novel. And Bitcoin has many drawbacks. Among them: Its price instability makes it unsuitable for one of the prime functions of money–a medium of exchange. Mining Bitcoin is also environmentally costly, resulting in carbon emissions similar to those of small countries. And governments that view Bitcoin as a threat to their monetary sovereignty and policies–notably China–are restricting its use.
Kuiper proposes several counterarguments to those points. He says investors should think of Bitcoin as a store of value first and foremost. Its volatility is a consequence of the fact that its supply is limited while demand fluctuates wildly. “As more people adopt it, you’d expect the volatility to die down and its use as a medium of exchange to pick up,” he says.
Governments, he argues, are learning to live with Bitcoin, rather than ban it. Russia and India appear more open to taxing and regulating it, he points out, and the U.S. government may be headed down a similar path with tighter regulations and tax policies.
As for the environmental toll, he points out that the network accounts for less than 1% of the world’s energy usage, equivalent to the power consumption of domestic washers and dryers in the U.S. “The question for Bitcoin is whether it’s a valuable use of resources,” he says, but one could pose the same question about other energy uses, like videogames or washing machines.
For now, the market doesn’t seem particularly receptive to the bullish case for Bitcoin. The token is still down nearly 50% from the record highs it hit last November, trading at around $37,500 early Wednesday afternoon.
Write to Daren Fonda at [email protected]
