Some cryptocurrencies have rallied slightly this week, but the "winter" is far from over, with prices well below last year's highs.
Bitcoin's price is down 44% from its highs. Ether prices are 43% below last year's high, BNB 45%, cardano 65%, XRP 70% and solana 58%.
Meanwhile, Fidelity, the world's largest asset manager, has released a paper calling bitcoin a "superior form of currency. It argues that Bitcoin is light years ahead of the competition and that no cryptocurrency is likely to catch up with it "as a monetary commodity.
"Bitcoin is fundamentally unlike any other digital asset. No other digital asset could possibly improve Bitcoin as a monetary commodity, because Bitcoin is the most secure, decentralized, and robust digital currency (relative to other digital assets), and any "improvement" would necessarily face trade-offs," the paper reads.
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There are several key reasons why Fidelity is bullish on bitcoin.
- The first is the “network effect”. Bitcoin has a first-mover advantage, and it already offers the largest, most secure, decentralized and liquid network. But as demand for bitcoin and its price rises, the network will forever consolidate its leadership. This will increase profits and incentivize bitcoin miners to invest more in computing power. More investment will lead to greater security, which in turn will make the asset more attractive, attracting more users and investors. Eventually, Bitcoin will become a dominant network, much like Facebook dominates social media. In other words, Fidelity wants Bitcoin to become the Facebook of the cryptocurrency world.
- Second, Bitcoin’s lead makes it difficult for any challenger to emerge. Any potential competitor would have to differentiate itself by sacrificing decentralization or security. At the same time, a competitor that simply copies the Bitcoin code will fail because there is no reason to switch from the largest cryptocurrency network to an identical but smaller one.
- Bitcoin has the most immutable “monetary policy” because its supply is limited. There will only ever be 21 million Bitcoins. Combined with its track record, this gives the currency a level of credibility that no digital asset can match in terms of maintaining its value.
New Investors Should Consider Bitcoin First
Analysts at Fidelity believe that other digital assets can meet different needs and that they are here to stay. But Bitcoin is likely to be the ultimate digital store of value. Investors looking to dip their toes into cryptocurrencies should consider bitcoin first.
"Bitcoin's first technological breakthrough was not as a superior payment technology, but as a superior form of currency. As a monetary commodity, Bitcoin is unique. Therefore, we believe that investors should not only consider Bitcoin first to understand digital assets, but should consider it first and separate it from all other digital assets that have emerged since," the paper reads.
With that said, lighten up.
Bitcoin is likely to be a long-term winner in the cryptocurrency space. But risky assets, including cryptocurrencies, could face strong headwinds this year as central banks slam stimulus measures and raise interest rates to keep inflation in check.
Staying ahead of cryptocurrency trends while in the market ……
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