Fidelity Investments’ Head of Global Macro Explains Why “Bitcoin Is Cheap,” Says Ethereum “Could Be Near Bottom”

On Friday July 8, Jurrien Timmer, Head of Global Macro at Fidelity Investments, shared his thoughts on Bitcoin and Ethereum valuations.

In March 2021, Timmer published a 12-page Bitcoin research paper (title: “Understanding Bitcoin: Does Bitcoin Belong in Asset Allocation Considerations?”).

Timmer began by saying that he wanted his article to serve as “a brief introduction in plain English, but also to assess, in a meaningful way, bitcoin’s value proposition as it relates to asset allocation.”

After his study of Bitcoin, here are some of the conclusions he came to:

  • … bitcoin has gone mainstream, already seen as a legitimate asset class by more and more investors.
  • … bitcoin has both compelling supply dynamics (S2F) and demand dynamics (Metcalfe’s law).
  • “… bitcoin is gaining credibility, and as a digital analogue of gold but with greater convexity…bitcoin will, over time, take more market share from gold.

Timmer said that “if gold is now competitive against bonds and bond yields are close to zero (or negative), it may make sense to “replace some of the nominal bond exposure with a portfolio of gold and assets that behave like gold”.

He ended by saying:

If bitcoin is a legitimate store of value, is rarer than gold, and comes with potentially exponential demand dynamics, is it now worth considering for inclusion in a portfolio (at some point? cautious level and at least alongside other alternatives, such as real estate, commodities and some indexed securities)?

Despite the many risks discussed, including factors such as volatility, competitors and political intervention for some, the answer may well be ‘yes’, at least to the extent that ‘yes’ only applies to to the 40 side components of 60/40. For these investors, the bitcoin question may no longer be “if” but “how much?”.

Well, yesterday Timmer shared his thoughts on Bitcoin and Ethereum price action with his 131,000+ Twitter followers.

He went on to say:

  • At its recent low of $17,600, Bitcoin is now even below my more conservative S-curve pattern, which is based on the internet adoption curve. (See table above.)
  • Looking at Bitcoin’s network growth, it’s clear that the adoption curve follows the more asymptotic Internet adoption curve, rather than the more exponential mobile phone curve. According to Metcalfe’s Law, slower network growth suggests more modest price appreciation.
  • However, based on a simple power regression line, Bitcoin’s network appears to be intact.
  • This continued growth of Bitcoin’s network, combined with lower prices, means Bitcoin’s valuation is falling.
  • I’m using the price per million non-zero addresses as an estimate of Bitcoin’s valuation, and the chart below shows that the valuation is recovering to 2013 levels, even though the price is only returning to 2020 levels. in other words, bitcoin is cheap.
  • If Bitcoin is cheap, then Ethereum may be cheaper. If ETH is where BTC was four years ago, then the analog below suggests that Ethereum could be close to a bottom.

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