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Bitcoin is “an aspirational store of value” and “an insurance policy” in times of increasing financial uncertainty, according to a new report from Fidelity Digital Assets, the agency in charge of custody and management of cryptocurrencies at Fidelity Investments. It handles about $ 7.3 trillion in assets as related by
report released Tuesday, July 28, explores the characteristics that position Bitcoin to play that role in the future, and consider whether it is indeed used today as a store of value.
Fidelity says that the leading cryptocurrency meets the criteria for being classified as a store of value, but has not yet reached the necessary level of acceptance. “Today, bitcoin is relatively recent and in close demand, compared to a global reserve of wealth like gold,” says the report.
Bitcoin’s volatility is one of the main arguments used against it, the report notes. But he argues that bitcoiners are opposed to the idea that the path of a new asset from a stage of low adoption to a global store of value is linear. “A different perspective is that many participants initially learn about bitcoin because of its volatility.”
Fidelity explains several reasons that make bitcoin attractive as a potential store of value. The first one he mentions is his scarcity, an inherent characteristic of the supply limit set at 21 million. Furthermore, the annual supply of bitcoin is reduced every 4 years by 50%. “The shortage of Bitcoin was encoded in the protocol when it was created,” the report notes.
Then the document refers to a set of external factors, drivers of the demand for bitcoin. Among those external factors, the report mentions: “unprecedented levels of central bank and government intervention, record levels of low-interest rates, increasing supply of fiat currency, and the potential for inflation to take off, all of which have been accelerated by the pandemic and economic unemployment.”
Another favorable factor for a bitcoin establishment as a store of value is the transfer of wealth to millennials (those born between 1981 and 1996). According to a study by the publication Coldwell Banker, some 68 billion dollars have passed into the hands of millennials, among whom there are 628,000 millionaires. This demographic segment is more open to digital investment alternatives compared to traditional products.
In his conclusions, Fidelity says that “Bitcoin’s inherent properties highlight the perspective that it has the potential to be a store of value, with complementary and interdependent components such as the Bitcoin network and its native asset, digitally scarce.” External factors that accelerate interest and investment in bitcoin include “unprecedented levels of fiscal and monetary stimulus, of unknown consequence.”
To complete the thesis, primary demand and bitcoin adoption continue to be favorable, says the Bloomberg Intelligence newsletter, published on July 2. These factors, combined with various indicators ratify its transition to “the crypto equivalent of gold,” the report says, and as
Bloomberg Intelligence analyst Mike McGlone noted that “volatility should continue to decline as bitcoin extends its transition from a highly speculative asset to the crypto equivalent of gold, but we expect the recent compression to be resolved through higher prices.”
Among the most favorable indicators for bitcoin, the report lists primary demand, adoption, the number of active addresses, capital flows from investors, and open interest in futures.
Active addresses, as reported by
CriptoNoticias, have been growing noticeably since the beginning of May, to exceed 900,000 active addresses. This fact has already been associated with some analysts with the local maximum that achieved the bitcoin price in July 2019. At that time there was also a similar rise in active addresses.
explains it and As shown in the graph, there is a growing trend of active addresses, and two peaks above one million addresses can be seen: June 11 and June 22. The fact of exceeding one million daily active addresses has not occurred since June 2019. The historical maximum of active addresses occurred on December 14, 2017: 1.28 million.
As for open interest, associated with Bitcoin futures and options contracts, it is also showing noticeable growth.
Open interest is the sum of all bitcoin derivative contracts that have not been settled, and the increase in value is a measure of investor interest in these financial instruments.
An example of this boom was the settlement on June 26, the settlement of BTC and ETH futures contracts for USD 776 million.
CriptoNoticias reported, Woo is convinced that Bitcoin has properties that make it a haven of value and the crisis unleashed by the COVID-19 pandemic proved this.
The analyst assures that this was the first time that Bitcoin tested these properties and, even at the worst moment, the fall in its price had less violence than that of other markets such as gold and the S&P 500 index, although, with the latter, showed a certain relationship.
As early as March, with the healthcare crisis just in its infancy, Woo had brought reassurance to Bitcoin holders by assuring that he did not expect a drop to lows or that the upward trend would be reversed. “First it will be in the accumulation phase and then move upwards,” he said at the time, and the events of the last few months proved him right.
Even with all its successes and its current optimism, it must be remembered that Woo himself considers that Bitcoin is still a “very immature and little commercialized” asset.
The analyst is convinced that because of this “it only takes a few guys with all the ammunition in the world to move it anywhere they want to eliminate most of the traders.”
CoinMetrics report says that and another important point is that perpetual contracts continue to drive the markets, year-to-date, monthly volumes across the exchanges where Coin Metrics currently has access to historical data have declined significantly.
Binance, in particular, has gained a significant amount of market share this year.
A look at daily volumes reveals that trading volumes across exchanges tend to move in tandem with one another. It also shows a resurgence in activity in late July, corresponding to the recent appreciation in Bitcoin’s price.
This view also traces the change in market dynamics to the March 12 crash; the role of derivatives exchanges in this crash was the subject of
SOTN Issue 43.
Perpetuals are highly influential in crypto markets, according to the report. Trading volume in the bitcoin perpetual markets tracked by Coin Metrics is significantly higher than in all crypto spot markets passing
Coin Metrics’ Trusted Volume Framework.
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