Fidelity Digital Assets: Bitcoin will develop into a separate asset class

Fidelity Digital Assets, a subsidiary of asset management giant Fidelity, believes that Bitcoin, the largest cryptocurrency by market value, has the potential to become an independent asset class after it matures.

This week, Fidelity Digital Assets released the latest research report from its head of digital research, Ria Bhutoria. This is the second in a series of reports the company is preparing related to digital asset investment, which aims to examine the forces driving current Bitcoin interest and investment, as well as the potential for digital assets to develop and gain more traction in the future.

“We examined Bitcoin’s ability to provide an optimized benefit in an investment portfolio. Earlier this year, we found that nearly 60% of investors surveyed who believed that digital assets had a place in their portfolio believed that Bitcoin investment should be funded from the alternative assets portion of the portfolio,” the report said.

The report is divided into four parts: reasons why investors include alternative investments in their portfolios; growing demand for alternative investments; attributes that make Bitcoin a sustainable diversified investment; and historical analysis of Bitcoin's impact on portfolios.

In the report’s conclusion, Bhutoria wrote, “It could be beneficial if investors consider Bitcoin as a component of their alternative portfolios, given the growing interest in alternative investments amidst stretched public equity valuations, low yields, and the potential for capital flows from fixed income assets to other asset classes.”

She believes that the main reason why Bitcoin lacked correlation with traditional assets in the early days was that the market was driven by individual investors. As more and more institutional investors in Bitcoin, this may lead to an increasing correlation between it and other assets.

The report states that there are many reasons why Bitcoin can continue to serve as a tool for diversifying portfolios and improving returns. Bitcoin's fundamentals are relatively unaffected by the COVID-19 pandemic because its value is not based on profitability or output, and Bitcoin itself is digital. Bitcoin is unique in that it continues to be influenced by individual investor sentiment and can leverage individual investors' interactions with traditional markets, and it could become a way to transfer wealth to millennials in the next decade.

Bhutoria believes that Bitcoin does not belong to a defined asset class at all, but the current market size and trading volume of Bitcoin are too small to be considered an independent asset class for strategic allocation in a portfolio. However, as Bitcoin grows and matures, it is not ruled out that Bitcoin will develop into an independent asset class in the future.