Fidelity’s Director of Global Macro Explains Why Ethereum ($ETH) Is Undervalued

Recently, Jurrien Timmer, Director of Global Macro at Fidelity Investments, compared the network growth of Bitcoin and Ethereum.

We tend to look at price, but for me valuation is the more relevant metric. Here we see bitcoin’s “price-to-network” ratio. Bitcoin’s fundamentals explain a lot of its meteoric price gains. Metcalfe’s Law at work. It’s not just about S2F. /2 pic.twitter.com/g9v1o6ye1o

— Jurrien Timmer (@TimmerFidelity) December 17, 2021

Alth both networks are “growing steadily”, Timmer says that Ethereum is growing faster. He also points out that $ETH’s valuation (as defined by market cap / network ratio) is lower than that of $BTC because investors seem to be seduced by Bitcoin’s “superior scarcity dynamics.”

Comparing BTC’s valuation to ETH we see a big discount for ETH, presumably because investors reward BTC for its superior scarcity dynamics. Whether ETH will continue to catch up to BTC will be an interesting thing to watch in 2022. /END pic.twitter.com/TVrWXr8Mfk

— Jurrien Timmer (@TimmerFidelity) December 17, 2021

On March 1, Jurrien Timmer, Director of Global Macro at Fidelity Investments, 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, some of the conclusions he came to are as follows:

“… 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 says 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?’.“

Disclaimer

The views and opinions expressed by the author, or any people mentioned in this article, are for informational purposes only, and they do not constitute financial, investment, or other advice. Investing in or trading cryptoassets comes with a risk of financial loss.