On January 31, 2022 Fidelity Digital Assets (FDAS) released a report titled “Bitcoin First,” in which co-authors Chris Kuiper and Jack Neureuter propose that Bitcoin is fundamentally different from other digital assets and that investors should treat it as a monetary good that “no other digital asset is likely to improve upon.” The same authors released the FDAS “Research Round-UP” report for 2021 less than one month ago, which also expressed bullish sentiments toward Bitcoin.
In their most recent report, Kuiper and Neureuter argue that because bitcoin was built as a monetary good, its “value must be derived from its ability to better fulfill the characteristics of a monetary good compared to traditional alternatives.” The authors identify several key features of Bitcoin that make it a viable form of money, claiming that it combines “the scarcity and durability of gold with the ease of use, storage, and transportability of fiat (even improving on it).”
Bitcoin’s programmed scarcity, with a provably finite supply cap of 21 million, is one feature that sets it apart from other digital assets. This hardcoded supply cap would be extremely difficult to change given Bitcoin’s “decentralization and censorship-resistant characteristics,” say Kuiper and Neureuter. According to the authors, “no other digital asset possesses an immutable monetary policy on the level of bitcoin,” adding that “bitcoin’s monetary policy may be viewed as the most credible.”
Network effects and Lindy’s law also set Bitcoin apart from other digital assets, according to Kuiper and Neureuter. Bitcoin has already grown to a market cap that far exceeds the next closest digital asset, despite exponential growth in new assets entering the market. According to Lindy’s law, the longer some non-perishable thing survives, the more likely it is to survive in the future - per the FDAS report, “every minute, hour, day, and year that Bitcoin survives increases its chances of continuing into the future as it garners more trust and survives more shocks.” Given its size and survival history, the authors conclude that any competing asset that merely copies Bitcoin will fail because “there will be no reason to switch from the largest monetary network to one that is completely identical but a fraction of the size.”
The report notes that any new asset trying to “improve” upon Bitcoin will necessarily face trade-offs between decentralization, security, or scalability. Although the authors concede that “scalability has notably been the Achilles heel of the Bitcoin network as it maximizes decentralization and security,” they include a segment on how the Lightning Network addresses this problem.
In a world where Bitcoin serves as the primary monetary good, all other digital tokens are left “battling to prove other viable use cases for their technology.” Because of this, Kuiper and Neureuter conclude that “investors should hold two distinctly separate frameworks for considering investment in this digital asset ecosystem. 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.”