Fidelity Digital Assets, a subsidiary of Fidelity Investments, has released a research report titled “The Rising Dollar and Bitcoin” that argues Bitcoin can be considered portfolio insurance. The report outlines how the strengthening U.S. dollar is wreaking havoc on global currency markets and may force the Federal Reserve to reverse its tightening policies, drawing a parallel to the 1985 Plaza Accord.
Bitcoin vs. Fiat: A Stark Contrast
According to Fidelity, the current strength of the U.S. dollar is causing significant stress in other countries. “More monetary debasement may be needed to alleviate the high debt load among developed economies,” the report states. It highlights events in the United Kingdom that have exposed counterparty and liability risks in the system, making monetary intervention and liquidity injections features that are unlikely to disappear soon.
In contrast, Bitcoin remains one of the few assets that does not correspond to another person’s liability, has no counterparty risk, and has a supply schedule that cannot be changed. “Therefore, Bitcoin may soon stand in stark contrast to the path that the rest of the world and fiat currencies may take — namely the path of increased supply, additional currency creation, and central bank balance sheet expansion,” Fidelity explains.
The Long-Term Burden of the Dollar System
Fidelity argues that while the U.S. dollar remains very strong relative to other fiat currencies, the reality of the U.S. financial system is that it is in a similar position as the U.K. in the long run. “With the high debt-to-GDP ratio it is unlikely to be equipped to handle higher real interest rates for a sustained period of time if the country aims to fulfill its current debt obligations,” the report notes. This suggests that the U.S. may eventually need to resort to further monetary expansion, which would weaken the dollar’s purchasing power and further enhance Bitcoin’s appeal as a store of value.
Institutional Adoption Accelerates
Fidelity Digital Assets is expanding its crypto services. It will launch Ether (ETH) trading and custody on October 28, 2022. The firm recently announced an Ethereum index fund, citing client demand for exposure to digital assets beyond Bitcoin. This move indicates that major financial institutions are increasingly viewing digital assets as a distinct asset class with hedging properties.
Fidelity’s research provides institutional investors with a framework to consider Bitcoin as digital gold — an asset that offers portfolio insurance against the risks of fiat currency debasement, counterparty failures, and unchecked central bank balance sheet expansion. As global macro uncertainties persist, the contrast between Bitcoin’s fixed supply and the ever-expanding fiat supply becomes ever sharper.