A new report from Fidelity Digital Assets argues that Bitcoin is fundamentally different from other digital assets and should be evaluated separately when constructing crypto investment portfolios.
Fidelity Digital Assets Highlights Distinctive Value and Assessment of Bitcoin in Crypto Portfolios
The globe’s third-largest asset manager, boasting a staggering $4.24 trillion in discretionary assets under management (AUM), is fervently bullish on BTC. Its affiliate, Fidelity Digital Assets (FDA), is wholeheartedly committed to the crypto-centric investment realm.
FDA’s most recent research report suggests that projects beyond bitcoin warrant a unique assessment, distinct from that of bitcoin itself. “Investors should hold two distinctly separate frameworks for considering investment in this digital asset ecosystem,” said report authors Chris Kuiper and Jack Neureuter.
The authors add:
The first framework examines the inclusion of bitcoin as an emerging monetary good, and the second considers the addition of other digital assets that exhibit venture capital-like properties.
The report asserts that Bitcoin is best understood as a scarce monetary asset whose primary value proposition is a store of value. Unlike other digital assets, BTC was designed first and foremost to solve the problem of digital scarcity and create a censorship-resistant form of digital money.
No other blockchain is likely to improve upon Bitcoin as a monetary good, the report argues, because any modifications would require trade-offs in decentralization or security. “Bitcoin is currently the most secure and decentralized monetary network,” the authors state. “Therefore, this excludes other networks that are competing in different use cases besides money.”
According to the report, Bitcoin benefits from powerful network effects that make it likely to emerge as the dominant monetary network. Its track record of surviving threats and attacks has also made it more robust through a phenomenon known as the Lindy Effect.
“Bitcoin’s return profile is driven by two strong tailwinds: the global growth of the broader digital asset ecosystem and the potential instability of traditional macroeconomic conditions,” Kuiper and Neureuter write. These returns come with lower risk compared to other crypto assets.
In contrast, non-Bitcoin digital assets are said to exhibit higher risks and returns more akin to venture capital investments. “Allocating to non-bitcoin tokens is often done with a venture capital-like mindset,” the report says.
Given Bitcoin’s distinct risk and return profile, the report concludes that crypto investors should evaluate Bitcoin separately as a monetary asset before considering other higher-risk, higher-return digital assets to complement their portfolio.
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