Bitcoin and the institutional investors are getting closer and closer together. We already talked yesterday about the strong growth of Grayscale and the increased demand from institutional investors. Now Fidelity Digital Assets, the subsidiary of the large American investment company Fidelity Investments, has published a report on Bitcoin, focusing on the Store of Value (SoV) narrative. Fidelity found that Bitcoin is now becoming increasingly attractive to investors as a digital store of value.
Bitcoin and its store of value functions
Fidelity Digital Assets was launched in October 2018 and has become a major player in providing cryptocurrencies and other services to large institutions. While initially operating only in the US, the company announced last year that it would expand into Europe due to the growing demand for digital assets.
In its recent report on Bitcoin, Fidelity Digital Assets described the leading cryptocurrencies as an „emerging store of value“. The company also pointed out that BTC is still at a relatively early stage of mass introduction, which could offer significant profit opportunities for investors. Fidelity illustrated Bitcoin’s scope for growth in the chart below.
An analogy is that an investment in Bitcoin today is similar to an investment in Facebook when the company had 50 million users and has the potential to grow to more than the two billion users it has today.
This is driven by the idea that Bitcoin offers an asymmetric upside. If Bitcoin is widely accepted by private and institutional investors as a store of value, the increase in value compared to the initial upfront investment can be significant.
BTC will eventually rank alongside gold
The report also compared the market share of BTC as a store of value with that of gold. It was found that the precious metal is still the undisputed favourite among traditional investors. Especially in such uncertain and turbulent times as they currently are. However, Bitcoin’s position could improve rapidly once the general public becomes more aware of BTC’s properties. This could have a dramatic impact on the price of BTC, according to John Pfeffer of Pfeffer Capital LP:
Most people in the world do not yet see Bitcoin as digital gold. As soon as people see it differently, the price will adjust.
Digital scarcity is increasing
According to Fidelity, the digital scarcity is what investors find most attractive about Bitcoin. After all, the oldest and most important cryptocurrencies have a maximum number of 21 million BTC.
The main characteristics mentioned in relation to a good value retention function are scarcity, transferability, durability and divisibility. Probably the most important of these features is scarcity, which is essential for long-term protection against the loss of purchasing power. Scarcity means that there is a limited quantity of the good. It cannot be created easily and it is impossible to counterfeit it.
That is why Bitcoin’s „counterfeit-proof digital scarcity“ fits perfectly into the perception of a value retention system. John Vincent of Wakem Capital Management commented that recent actions by governments around the world to print excessive amounts of fiat currencies exemplified the qualities of Bitcoin.
Money supply doubled – Bitcoin’s supply halved
Referring to the BTC Halving in May of this year, he said: „You don’t have to be a doctor to understand that the number of US dollars has just doubled, while the BTC supply has just halved“.
The notorious volatility of Bitcoin has often been cited by opponents as an inherently negative feature that repels traditional investors. Fidelity’s report did indeed acknowledge the high volatility, but offered a contrasting approach:
Another perspective is that many participants first get to know Bitcoin because of its volatility. As new participants undertake further research, perceptions often shift to focus less on short-term performance and more on the long-term value proposition.
The investment firm also claimed that high volatility „may attract investment, development and innovation.