Bitcoin is an “aspirational store of value,” according to a new report by Fidelity Digital Assets.
The company’s director of research, Ria Bhutoria, said many investors believe that the world’s biggest cryptocurrency has the properties of a store of value—but this is yet to be widely accepted.
She pointed to how scarcity is a key characteristic in a good store of value, as seen with gold, and argued that one of Bitcoin’s most novel innovations is the fact that no more than 21 million BTC will ever exist.
Bhutoria added that several factors “are all adding fuel to the fire of awareness and adoption”—with a perfect storm of record-low interest rates and unprecedented levels of monetary stimulus having the potential to make BTC more attractive in future.
“An analogy is that investing in Bitcoin today is akin to investing in Facebook when it had 50 million users with the potential to grow to the more than 2 billion users it has today,” she wrote. “This is driven by the idea that Bitcoin offers asymmetric upside. If Bitcoin is widely adopted by retail and institutional investors as a store of value, the upside may be substantial relative to the initial upfront investment.”
In Fidelity’s report, the word “aspirational” ends up doing a lot of heavy lifting.
As Bhutoria points out, there are still some sizeable hurdles facing Bitcoin, not least because it has a small user base and far less demand than the likes of gold.
Although she concedes that the cryptocurrency’s infamous levels of volatility undermine the argument that it could be a store of value, she argued that BTC’s erratic behavior results in heightened public awareness—and upward volatility “attracts investment, development, and innovation.”
Bhutoria also predicted that Bitcoin may forever be more volatile than traditional assets because of its inelastic supply and relatively intervention-free market. That said, it should level out somewhat. “Over time, volatility should continue to decline relative to current levels as narratives converge, base demand rises, activity on institutional platforms expands and sophisticated investment trading and investment products emerge,” she wrote.
According to the Fidelity Digital Assets report, the coronavirus pandemic has the potential to speed up the next wave of awareness and adoption—given how quantitative easing tends to result in inflation, meaning the dollar in your pocket doesn’t go as far. “Traditionally, in these situations, investors have turned to fixed supply assets such as real estate, dividend yielding stocks, and precious metals,” Bhutoria wrote. “This time around, investors could turn to a new type of fixed supply asset as protection against potential inflation or low interest rates, but with significant growth potential—Bitcoin.”
Bhutoria also looks longer term—and notes that there are currently 620,000 millennial millionaires in the U.S. She writes: “The millennial demographic (those born between 1981 and 1996) is more open to novel, digitally native alternatives versus legacy products and services, and more comfortable holding new types of investments. This open-mindedness has been shaped in part by the 2008 financial crisis. Entering the workforce at such an inopportune time instilled a level of skepticism towards the traditional banking system.”
Interestingly, it also appears that millennials prefer Bitcoin over more established stores of value like gold. Bhutoria cited anecdotal evidence from one investment advisor who said about 90% of his millennial clients would choose crypto over precious metals—and that could prove decisive when it comes to future demand.
“The massive transfer of wealth from the older generation to a younger demographic is a more gradual but important long-term tailwind, as younger people view Bitcoin more favorably. This is an important catalyst for Bitcoin adoption as they inherit and grow their wealth,” she wrote.
Ultimately, Bhutoria concluded that Bitcoin is not guaranteed to succeed as a store of value—but the cryptocurrency’s strength “is that it has properties that allow it to serve multiple functions, further hardening the likelihood of its success as measured by growth in value.”
Back in June, Fidelity Digital Assets held a poll of approximately 800 institutional investors, 80% of whom admitted they find something appealing about this asset class.
Of those who revealed they have exposure to digital assets, more than 60% have made a direct purchase. More than one quarter of respondents confirmed they hold Bitcoin, while 11% own Ethereum.
The growing optimism comes as both Bitcoin and Ethereum enjoy substantial gains in their value with BTC crashing past $11,000 last week and ETH celebrating its fifth anniversary month up 50%.