Analysis of Fidelity's Perspective on Bitcoin's Role in the Digital Asset Ecosystem

Key Themes and Ideas

1. Bitcoin as a Monetary Good:

• Definition: The report emphasizes that a monetary good is valued for its tradability rather than its consumption or use. Historically, various goods have served as money (shells, gold).
• Bitcoin's Properties: Bitcoin exhibits key monetary properties:
• Scarcity: Unlike fiat currencies, Bitcoin has a fixed supply of 21 million. "There will only ever be 21 million bitcoin."
• Durability, Divisibility, Portability, Fungibility, Verifiability: The report compares Bitcoin favorably to gold and fiat currencies in these areas.
• Decentralization & Censorship Resistance: "No one person, corporation, or government owns or controls the Bitcoin network or the rules that govern it."
• Store of Value Thesis: Bitcoin's scarcity and security make it suitable as a store of value in an increasingly digital world. "One of the primary reasons investors attribute value to bitcoin is its scarcity. Its fixed supply is the reason it can be a store of value."

1. Bitcoin vs. Other Digital Assets:

• Fundamentally Different: Fidelity stresses that Bitcoin is not just another digital asset; it’s fundamentally different. It is designed as a monetary good, unlike many others with platform-like aspirations.
• Venture Capital Perspective: Non-bitcoin projects should be viewed with a venture capital lens, focusing on their functionality, scalability, and the network effects they can create.
• No Direct Competition: Other digital assets are not necessarily in direct competition with Bitcoin's primary role as a store of value. "There is not necessarily mutual exclusivity between the success of the Bitcoin network and all other digital asset networks. Rather, the rest of the digital asset ecosystem can fulfill different needs or solve other problems that bitcoin simply does not."

1. Network Effects and Dominance:

• Powerful Network Effects: Monetary networks have extreme network effects. The more participants, the more valuable the network.
• Reflexive Property: Increased adoption drives further adoption due to peer-to-peer transactions. This reflexivity, combined with higher prices, incentivizes miners to increase the network's security.
• Winner-Take-All: The report suggests a "winner-take-all" scenario for monetary goods is likely due to the strong network effect. "This network competition is likely to result in a winner-take-all scenario..."

1. Bitcoin's Resilience and the Lindy Effect:

• Lindy Effect: The longer Bitcoin survives, the more likely it is to endure. "...the longer some non-perishable thing survives, the more likely it is to survive in the future."

1. Bitcoin’s Role in Different Scenarios:

• Multi-Chain World: Even in a world with multiple blockchains, Bitcoin is likely to be the ecosystem’s primary monetary good.
• Winner-Take-All World: Bitcoin is well-positioned to dominate as the most decentralized and immutable blockchain.

1. Investment Framework:

• Separate Frameworks: Investors should adopt separate frameworks for bitcoin (as a monetary good) and other digital assets (as venture capital-like investments).
• Bitcoin's Risk Profile: Bitcoin's risks are lower compared to other digital assets due to its code simplicity and focus on decentralization.
• Bitcoin's Return Drivers: Bitcoin's returns are driven by the broader growth of the digital asset ecosystem and potential instability in traditional macro conditions.
• Non-Bitcoin Risks: Non-bitcoin tokens often face more significant risks, including competition, lack of decentralization, and the possibility of becoming worthless. "The risks with non-bitcoin tokens certainly ranges on a case-by-case basis and tends to become more extreme in longer-tail, more speculative tokens."