While certain cryptocurrencies had a brief uptick this week, the “winter” is far from over, with values still considerably below last year’s highs. Bitcoin’s price has fallen 44 percent from its all-time highs. Ethereum is now trading at a 43 percent discount to its one-year high, BNB is trading at a 45 percent discount, cardano is trading at a 65 percent discount, XRP is trading at a 70 percent discount, and solana is trading at a 58 percent discount to its one-year high.
Meanwhile, Fidelity, the world’s biggest asset management, published a study describing bitcoin as a “better form of money.” It contends that bitcoin is light-years ahead of the competition and that no cryptocurrency is expected to overtake it “as a monetary product.”
Bitcoin is inherently unique among digital assets. No other digital asset is likely to outperform bitcoin as a monetary good, the study argued, since bitcoin is the most secure, decentralized, and sound digital money (in comparison to other digital assets), and any “improvement” would always include compromises. Fidelity’s positive thesis for bitcoin is predicated on many major points: To begin, there is the “network effect.”
Bitcoin has the benefit of being the first to market, and it already has the biggest, most secure, most decentralized, and most liquid network. However, as demand for bitcoin grows and its price rises, the network will firmly establish its dominance. This increases earnings, which incentivizes bitcoin miners to increase their investment in processing power. Increased investment results in increased security, which in turn increases the asset’s attractiveness, attracting new users and investors. Bitcoin will eventually become a dominating network, similar to how Facebook has dominated social media. In other words, Fidelity believes that bitcoin will eventually become the Facebook of the cryptocurrency world.
Second, bitcoin’s dominance makes any rival tough to arise. Any rival would have to distinguish itself by foregoing decentralization or security. Meanwhile, a rival who merely copied bitcoin’s code would fail, since there would be no incentive to transfer from the world’s biggest monetary network to a similar but far smaller one. Because Bitcoin’s supply is limited, it has the most unchangeable “monetary policy.”
There will never be more than 21 million bitcoins created. When combined with its track record, this provides the currency with unmatched trust in terms of maintaining its value. According to Fidelity’s experts, various digital assets may serve a variety of purposes and will continue to exist.
However, bitcoin is quite likely to become the ultimate digital store of wealth. And those interested in dipping their toes into crypto should start with bitcoin. “Bitcoin’s first technical breakthrough was as a superior form of money, not as a better payment method. Bitcoin is unique as a monetary good. As a result, we argue that investors should not just evaluate bitcoin first in order to comprehend digital assets, but that bitcoin should be regarded first and apart from any subsequent digital assets,” the study said.
Having stated that, proceed with caution. Bitcoin may very well emerge as the long-term victor in the cryptocurrency realm. However, with central banks pounding stimulus cuts and hiking interest rates to curb in inflation, risk assets, including cryptocurrency, may face significant headwinds this year.
