 If you are thinking of investing in crypto, you are probably wondering, is Bitcoin really the best option? What about all the altcoins out there? Some of them have so much more upside potential. People look at Bitcoin and they look at what it's already done, and they say, ah, how much can it be left? Chris Kuiper, head of research at Fidelity Digital Asset, thinks Bitcoin should still play an exclusive role in an investor's portfolio. There's still a huge amount of upside. You can't reinvent something that's already been invented in terms of the most secure, most decentralized, and what we consider as the best monetary good. What is Fidelity's current investment thesis on crypto? And is Bitcoin still the most promising crypto investment? Find out in another exclusive coin telegraph interview. So as someone that has invested in crypto like myself, I have been wondering lately, is Bitcoin the right cryptocurrency to be invested in at the moment? Because I saw that in the past year or so, there were a few cryptocurrency projects that have shown high-popping gains, and those gains have overshadowed the ones of Bitcoin. Bitcoin in 2021 registered just around 40% gains. So those projects I'm mentioning, like Solana, like Terra, they show solid fundamentals. So it's not just about speculation. So why would investors prefer to invest in Bitcoin rather than in projects that have a far higher growth potential than Bitcoin? Yeah, that's a great question. And first of all, it's just kind of funny that we're talking about only 40% annual gains for something when traditional finance, that would be absolutely eye-popping. But of course, in the world of digital assets, that's on the lower end for some of these things. But your question's a good one because it's something that we've encountered with a lot of our investors as well. They look at Bitcoin and they say, I understand it, I get the technology, I'm warming up to it, but now I need to figure out which project to allocate my capital to. And I see Bitcoin, but I also see all of these other things. And so there's two hesitations that they have. One of them that you touched on, as Bitcoin, the first mover, it's already gone from basically nothing to, we saw it go over trillion dollars, how much more can it run? And then the second thing they always bring up is, well, if it's the first, and I apply this technological investing framework to it, I usually know that the first one, the pioneer doesn't usually get the spoils. It's something that comes after. So they typically think of Facebook coming in after MySpace or Google coming in after Alta Vista. And so our latest paper takes a look at this, and we say, you can't apply that same technological framework to Bitcoin. We think Bitcoin is best understood as a monetary good. So it deserves a special bucket. And all of these other projects, while I agree, they might have a lot higher returns, they also have a lot more risk. So you have to take more of a venture capital approach when you're looking at them. Yeah. And we're going to dive deeper into this in a moment. But first, I would like to get more an understanding of your definition that you just used, the definition of Bitcoin as a monetary good. So at the end of 2020, Fidelity released a report where your predecessor as a head of research at Fidelity Digital Assets defined Bitcoin as an aspirational store value. So you define it as an emerging monetary good. So can you explain this switch in definition? Does it indicate a change in approach, a change in Fidelity's approach to Bitcoin? No, that's a great point. You did see us publish research on Bitcoin as an aspirational store value. And then you're correct. We talk about it as a monetary good in this paper. And so it's not a switch in the definition. It's more kind of a subset. So if you think about the traditional definition of money, what is money? And people say this is a good that people don't want to consume or use, but they want to use it to trade. So a money can be a store of value, a means of exchange or a medium of exchange, and then also a unit of account. And so really store of value is just one property or role that money can play. And so we don't see them differently at all. So as you pointed out in your report, Bitcoin is the most secure and decentralized monitoring network. However, as you also mentioned, it is not very scalable, because it can handle around three to seven transactions per second, which is very little compared to the Visa and Mastercard payment systems that can process thousands of transactions per second. But also it's very little compared to what other cryptocurrencies can do. There are cryptocurrencies that can process far more transactions per second. So isn't transaction speed also an important requirement for an effective monetary network? Yeah, that's a great point. So I think it helps to distinguish between just purely a payment network versus a new monetary network or money system. And so Bitcoin, as you know, has this unique capability where it's an amazing payment network. It's the first global decentralized censorship resistant payment network. Anyone can plug into it and send someone something of value anytime, anywhere. That's really amazing. But we actually argue that as amazing as that is, the real invention here is Bitcoin as a money. And so if you think about what does the world need right now? Does it need a better payment system or does it need a better money? And so we would argue it probably needs a better money. This was that big invention that we talked about in the paper. And so the other thing to think about too is that it doesn't necessarily hamper it. And you have to first make sure you're looking at apples to apples. So you brought up Visa, which a lot of people bring up. But Visa, you know, we're used to going to the coffee shop, putting in our credit card or Visa credit card, and it pays for our coffee instantly. But that transaction hasn't actually settled yet. And so when you're comparing Visa's 1700 transactions per second, you're comparing that to transactions that haven't settled. They usually settle one, two, even three days later, versus Bitcoin transactions that do a final settlement within that 10 minutes to an hour or two. So you got to compare apples to apples. And then the third thing I would say is there are ways to scale the Bitcoin network. You know, if you want to scale it and have it for faster and faster transactions, I'm sure we'll talk about some of those solutions. But there can be things built on top of Bitcoin to handle some of those higher throughput needs. Okay, now I want to stop you there because you said something very interesting. You said that the world needs a better form of money than a better payment system. So can you explain why you think so? Yeah, you know, a better payment system is great, like I said, but it's a little bit incremental. Like I think we could have continued to evolve our payment systems. And again, we got to compare apples to apples here. So just go back a little bit first, you know, think of some of the big payment systems that we have for very large transactions, Swift and ACH. These are slow, these are cumbersome. The other thing we talk about is Bitcoin as digital gold. If you wanted to move gold in today's world, it would take you months of planning, logistics, hiring of armed guards, insurance. But we've literally seen billions of dollars of Bitcoin move within a few hours for just a couple of dollars. So again, you have to frame it correctly. But to get to your question, why we need a better money, you know, I think the world is becoming awash in fiat currencies. We're seeing them being debased around the world for better or worse, depending on your view there. But I think, you know, if you look at investors, they typically would say, we need, you know, some hard currency exposure during this time, especially during high inflation or negative interest rates. So they would typically flock to something like the Swiss franc used to be called the hardest currency. But we're increasingly seeing very few hard currencies as central banks increasingly inflate their balance sheet and debase their currencies around the world. So again, we believe the more significant opportunity here is for a better money, not necessarily just a better payment system, even though we find that very exciting and useful as well. So basically, considering the famous blockchain trellama of security, decentralization and scalability, you seem to think that for creating an optimal monetary network, just decentralization and security are the two main factors that make a very good monetary network, while scalability is not that important. Yeah, that's right. I mean, if you think about something as money, a place to store wealth, your time, your energy, are you going to want to put it in the network that is the most secure and decentralized censorship resistant? Or are you going to want to put it in something that's less secure, less decentralized, but it's a little faster? And I would argue most people, and I think looking at market cap, most people are voting with their dollars this way as well. They'd rather have the ultimate security and decentralization. That's what you want in a money. You're willing to wait a little bit or to get around some of these slower issues as a tradeoff for that security and decentralization. So you compare the invention of Bitcoin to the invention of the wheel. Can you explain to us this comparison? Yeah, when we were writing the paper, we thought saying you're going to create a better Bitcoin is like reinventing the wheel. And it's such a cliche. We thought, well, let's not use it. It's not a good analogy. But the more we thought about it, we thought, well, it's a cliche, but this is where it actually applies. Once someone invented the wheel, that could not be unseen. Anyone else could take a circular object and put it on its side and have a wheel. And so no one can reinvent that. It's been done once. Another good analogy I hear is the Peter Thiel zero to one moment, that breakthrough. It's not incremental. It's something that has leapfrogged, right? And so we think Bitcoin is the same way. You can't reinvent something that's already been invented in terms of the most secure, most decentralized and what we consider as the best monetary good in the digital asset space. Anybody who copies it is just merely going to copy it. And anyone who tries to improve on it is going to go back to that trilemma problem of they're going to have to sacrifice one of those or two of those properties to try to, quote, improve upon it. When I think about the wheel, I agree that it's very difficult to picture something that does better what the wheel does. On the other hand, you can kind of imagine or picture in your mind cryptocurrencies that does exactly what Bitcoin does. But on top of that, it is also easily scalable. And so improve on that aspect. What would you respond to this argument? Yeah, I don't think we have seen it. I won't be so bold as to say someone somewhere won't figure out some holy grail. But at least in terms of how we understand it, every time there's a new tweak to Bitcoin's core code to, quote, improve it, you're making that trade off. And so we've seen this, we took a few case studies looking at the block size war. This seemed like a very simple tweak to speed up or increase the scalability of Bitcoin. And there was a huge civil war, as you know, against the small blockers and the big blockers. And the small blockers won because they came out and said, no, we need to keep this the most secure, the most decentralized as possible. And so again, people who want to tweak it are going to make some trade offs along the way. And so I think we've seen that historically. And I would argue that you're going to continue to see that as well. So now let's talk about the evolution of the blockchain ecosystem in the following year. So in your report, you pointed out two possible scenarios that investors should look at. One scenario is the multi chain scenario, where multiple interconnected blockchains are going to thrive together. While the second scenario that you picture is the winner take all scenario in which all the future blockchain applications will be built on one blockchain, the strongest blockchain, the most successful one. So you think that in both scenarios, Bitcoin is going to come out as a winner. So can you go through these two scenarios and explain why you think that Bitcoin is going to be in a good position in both? Yeah. So in both of these scenarios, they are hypothesis of how this may evolve. Now, of course, this may evolve quite differently. But I think as an investor or someone looking at this space, you need to at least consider how this might play out. And so like you said, we do these two buckets. The first bucket, as you said, a multi chain world. So this is kind of like what we're seeing today, where you've got individual, more like silos, you know, every chain is its own ecosystem. You've got, for example, just throwing out examples here, the Ethereum kind of ecosystem, Solana. And then, you know, Bitcoin, of course, as we said, is on its own. And so if that world continues to evolve, you could see amazing innovation and all of these other projects, all of these other chains, we don't deny that or disparage that in any way. But we make the case that at the end of the day, the thing that gives these other tokens or projects value is that they can somehow tie back to Bitcoin, either be converted back to Bitcoin. And again, taking that view that Bitcoin is the best monetary good. And we try to give an example, it's not a perfect analogy. But if you think of like an arcade, in the arcade, you take your monetary good, your US dollars, for example, and you exchange them for arcade tokens. Now, those arcade tokens have value because you've exchanged, you know, your hard earned money. And the tokens are very useful in their arcade, you can play games, you can get enjoyment out of them, you can trade them for prizes and goods or food or candy. But if you were to take those tokens out of the arcade ecosystem that closed kind of silo, they pretty much have no value at all. And so again, you have to have them within a silo that then ties back to more of a monetary good. And so again, not a perfect analogy, but I think at the end of the day, you still have Bitcoin as that monetary anchor in this world. The other world that you could imagine is everyone flocks to the most secure, decentralized network and protocol. And then they just choose to build on top of that, because that's where the value is. And so the analogy here we give is the internet. TCPIP was a protocol that was invented, open source. So there's no way to own it, but it was open source and all of these other services were built on top of TCPIP and internet age. So like that, Bitcoin, the protocol is also at the base layer there and things are getting built on top of it. But in this case, you can actually own a piece of the protocol. And so that's how someone could still garner a lot of value by owning Bitcoin. They're agnostic as to what gets built on it. As long as value is getting built on it, they own a piece of it. Okay, so I got a couple of objections for both of these scenarios. So going back to the first one, so the multi-chain future where multiple blockchains are going to thrive, you said that these blockchains are going to work as some sort of a siloed blockchains where people are going to play with these tokens and then once they will have to cash out, they will still transfer those tokens, convert them into the best monetary good, which is going to be Bitcoin. But on the other hand, why would they do that? Why at the moment, we already have those kind of siloed systems where people are playing around with these tokens, but then in order to cash out if they want to cash out and convert them into something more stable, then they would do it using stable coins. Why would they use Bitcoin, which is still very volatile in the short term? No, that makes sense to me as well. I think you're correct in that, yes, they can convert to a stablecoin, but then let's take that one step further. What is the stablecoin backed by? It's backed by other fiat currencies. These are not scarce. The only thing that prevents their issuance is the will of the central bank or government issuing them. Historically, we have seen that that will is not usually very strong. Again, I would agree with you, but then argue to take that one step further that in a broader sense, the bigger world, you're still going looking at Bitcoin to be more of an aspirational store of value to hold that purchasing power compared to your stablecoins because they're ultimately representing a fiat currency. That sounds like a fair counter-objection. Now, I would like to touch upon the second scenario, the winner-take-all scenario. You seem to believe that in this scenario, there will be this base layer on which most blockchain applications will be built. You think that this base layer will be Bitcoin. On the other hand, there is a lot of talking right now about this new internet that will be built in the following years, Web3. Bitcoin seems to be playing a very marginal role into this narrative. On the contrary, when people think about this base layer, they think more about Ethereum. What do you think? Don't you think that Ethereum should also play a special role in the investor's portfolio, as also Bitcoin should? I would say our paper does not argue anything against what you've just said, only to say that Bitcoin deserves a special place as a monetary good. Now, you're correct. Maybe our hypothetical scenario of stuff getting built on top of Bitcoin will not materialize. In our opinion, it would just stay pretty much a pure monetary good with other stuff not being built on top. I would still argue that's okay. You still need a scarce monetary good in this new digital world. But to your point as well, yes, Ethereum could be more of the base layer of some of these other decentralized applications. Again, investors should look at that. But in the paper, we just are saying don't conflate the two. We do a case study of Bitcoin versus Ethereum. Again, more of a venture capital lens on some of those other applications or things being built on top, and then more of a monetary lens on Bitcoin itself. So in your report, you pointed out that even if Bitcoin is unlikely to appreciate 100x as it did in the past, investors may be underestimating the potential return to Bitcoin compared to other digital assets. So assuming that according to you, Bitcoin has little chance to appreciate 100x from now. So what do you think are the more is a more reasonable expectations for Bitcoin's growth in the following years? Yeah, so we take a very long term approach to looking at Bitcoin as an investment. So allocating a core position and running some of those scenarios. So we don't have, you know, one, two, three, five, 10 year specific price prediction, other than to say that we think it will still be much higher. We're still very, very early. And so again, getting back to that first question of why we wrote this paper, people look at Bitcoin and they look at what it's already done, and they say, ah, how much can it be left? And we're arguing here, there's still a lot left, especially if you think of it increasingly taking on this monetary role. For example, in other research, we've compared it to the market cap for gold. And again, the paper, we have a table that compares Bitcoin to gold. And you see Bitcoin has the same characteristics of gold and even improves upon a lot of the characteristics of gold. So it's more portable. It's more verifiable. It's more divisible. And it's not only scarce, but it's also finite. So you start to just look at some scenarios of how much could Bitcoin take of gold's market cap? How much could it take of, you know, other currencies for people to store their wealth? And I think the answer is clear that there's still a huge amount of upside. And the thing people forget is that even though Bitcoin's gone up 100,000 X or whatever you're looking at, you know, from a few dollars 10 years ago, it was also much riskier back then. And so a lot of the risks have been taken off, you know, that left tail, as we say, of distributions has been cut off. That's another thing we look at in the paper, you know, all the shocks that the Bitcoin monetary network has endured has only made it stronger and taken off a lot of those risks. Okay, cool. So I think after this interview, our viewers will be looking back at Bitcoin with a more optimistic and exciting attitude. So thanks a lot, Chris, for the chat. It was great to have you on our show. Thank you so much. It was my pleasure.