Last January, Fidelity released a report on why “investors must consider Bitcoin (BTC -0.48%) separate from other digital assets.” In the report, Fidelity highlighted various qualities that Bitcoin possesses that not only make it more desirable as a store of value, but also inherently more decentralized and secure than other cryptocurrencies. And after the year 2022, never has it seemed more necessary.
2022 in short
The past year has been one of turmoil and scandal, highlighted by events such as the implosion of stablecoin Terra and the more recent bankruptcy of crypto exchange FTX. If 2022 had to be boiled down to one headline, it would probably read something like “Centralized Players Exploit Decentralized Assets” or something similar.
Due to the rapid rise of cryptocurrencies and the increased interest of investors, individuals and companies have realized that there is money to be made. They created their own cryptocurrency tokens, extended loans to undeserving companies, and occasionally even pocketed investors’ dollars.
This is the ultimate problem. Cryptocurrencies should be decentralized and without any control of one person or one company. The Fidelity report showed through a series of analyzes that Bitcoin is the epitome of decentralization and security, and possesses other inherent characteristics that should make it the digital asset of choice for investors.
It’s a long document, 26 pages in total, and full of compelling reasons why Bitcoin should be considered separate from all other cryptocurrencies. To save you from reading the entire paper, here are the main points from Fidelity analysts.
In a class by itself
Some of the features of Bitcoin that distinguish it from every other cryptocurrency are its unparalleled level of decentralization and security. Since the inception of Bitcoin, numerous cryptocurrencies have taken off, but many of them have sacrificed security and decentralization in favor of high transaction speeds. Often decisions such as the speed at which new tokens enter circulation or the consensus mechanism to be used are left to a select few community members such as founders and developers.
But with Bitcoin, there isn’t just one person or entity pulling the strings behind the scenes, which is an attractive quality given the flaws that have plagued some networks in 2022. Furthermore, Bitcoin’s distributed and expansive network of nodes around the world makes it much more secure than its closest competitors. .
Perhaps the most interesting conclusion reached by Fidelity analysts was their belief that Bitcoin has the potential to become a “primary monetary asset” because of the characteristics that make it sound money — namely its scarcity and desirability. Fidelity suggested that Bitcoin’s limited supply of 21 million coins and its growing network effect could make it the digital asset of choice for investors.
Because of Bitcoin’s first-mover advantage (it was the first and only cryptocurrency for a long time), its blockchain has become “the most secure, decentralized and liquid network” — qualities that Fidelity says encourage users to choose the Bitcoin network over others. Fidelity analysts believe that this process of more people choosing Bitcoin over other cryptocurrencies will increase its legitimacy, which will subsequently make it more valuable as demand grows.
Lessons to be learned
Now that 2022 has come and gone, it’s past time for investors to realize that not every new cryptocurrency is worthy of a place in their portfolio. Many of these funds pretend to be cryptocurrencies, but in reality are more like centralized Ponzi schemes.
There will likely never be another Bitcoin and for that reason it should be given higher priority than any other digital asset. Bitcoin investors can rest assured that the blockchain will remain resilient to the centralized actors that inevitably come and go, but most importantly, it is the most likely candidate to become the primary digital asset for years to come.
RJ Fulton has positions in Bitcoin. The Motley Fool has positions and recommends Bitcoin. The Motley Fool has a disclosure policy.