Fidelity Investments’ Director of Global Macro Explains Why “Bitcoin Is Cheap”, Says Ethereum “Could Be Close to a Bottom”

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

In March 2021, Timmer published a 12-page research paper on Bitcoin (title: “Understanding Bitcoin: Does bitcoin belong in asset allocation considerations?”).

Timmer started by saying that he intended his paper to serve as “a brief plain-English primer, but also to assess, in a meaningful way, the value proposition of bitcoin as it relates to asset allocation.”

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

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

Timmer said that “if gold is now competitive with bonds, and bond yields are near zero (or negative), perhaps it makes sense to “to replace some of a portfolio’s nominal bond exposure with gold and assets that behave like gold.”

He finished by saying:

If bitcoin is a legitimate store of value, is scarcer than gold, and comes complete with a potentially exponential demand dynamic, then is it now worth considering for inclusion in a portfolio (at some prudent level and at least alongside other alternatives, such as real estate, commodities, and certain index-linked securities)?

Despite the many risks discussed—including such factors as volatility, competitors, and policy intervention for some the answer may well be ‘yes,’ at least insofar as that ‘yes’ applies only to components on the 40 side of 60/40. For those investors, the question of bitcoin may no longer be ‘whether’ but ‘how much?’.

Well, yesterday, Timmer shared his thoughts on the price action of Bitcoin and Ethereum with his over 131K Twitter followers.

He went on to say:

  • At its recent low of $17,600, Bitcoin is now below even my more conservative S-curve model, which is based on the internet adoption curve. (See chart above.)
  • Looking at Bitcoin’s network growth, it’s clear that the adoption curve is tracking the more asymptotic internet adoption curve, rather than the more exponential mobile phone curve. Per Metcalfe’s Law, slower network growth suggests a more modest price appreciation.
  • However, based on a simple power regression line, Bitcoin’s network appears to be intact.
  • That continued growth in Bitcoin’s network, combined with lower prices, means that Bitcoin’s valuation is coming down.
  • I use the price per millions of non-zero addresses as an estimate for Bitcoin’s valuation, and the chart below shows that valuation is all the way back to 2013 levels, even though price is only back to 2020 levels. In other words, Bitcoin is cheap.
  • If Bitcoin is cheap, then perhaps Ethereum is 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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