Fidelity Investments Director of Global Macro Jurrien Timmer joins Yahoo Finance to discuss the momentum behind Bitcoin as it makes a push for 100K, the future of cryptocurrency, and the outlook of the stock market moving forward.
- Our next guest says Bitcoin could reach $100,000 by 2023, and that's solely because of momentum traders. Jurrien Timmer is Fidelity Investment's director of Global Macro, and joins us now. Jurrien, really-- it's good to see you, and really interesting call here. Some would argue that Bitcoin might reach $100,000 within the next month or two. Why have you taken a longer-term time frame?
JURRIEN TIMMER: Well, so, you know-- first, good morning. Nice to be on the show. Always have to put the caveat out there that price predictions are great, but they're not really worth that much. What we do know is that Bitcoin, obviously, is on the move. And it actually is on the move without the help of short-term momentum chasers.
You know, when I look at on-chain dynamics and you look at the number of bitcoins held by accounts that owned them less than three months, so I call those tourists, basically, short-term traders chasing momentum, the opposite of the HODLers, who just hold this for the very, very long term. That group is down to 15% of all bitcoins held. So I'm talking about the short-term chasers.
And that actually is below what we see at most bottoms, let alone a price that is approaching the all time high of $65,000. We're at $58,000 today. So this move up has come without the help of momentum chasers, which I think is actually a very good sign because it means that there is something else making Bitcoin go up, and that is fundamental demand for Bitcoin and its network. So you know, when I come up with $100,000, that's really just a conservative estimate based on the intersection of my supply model and my demand model.
So obviously, one of the challenges with a new technology or a new asset like Bitcoin is that it's a new aspiring asset class in price discovery mode. Nobody really knows what it's worth, so we're all kind of just trying to figure it out. But based on the network effect, Metcalfe's law, which means that as the network gets bigger-- and the network has grown already exponentially-- price goes up even more exponentially from there. That's Metcalfe's law in effect. And other technology innovations, and even, like, a stock like Apple-- not that I'm a security analyst-- has gone through that same process, where you its sales go up 38-fold over 10, 20 years, and its market value goes up by 900-fold.
So it's an exponential increase. And based on those metrics, by 2023, my models show $100,000. But maybe it gets there in a very non-linear way, because if we know one thing, it's that Bitcoin doesn't move in a straight line. So who knows? Maybe it goes to 200 first and then to 100, and maybe that's the base for the next bear market. So who knows? But that, to me, seems like the path of least resistance. And the fact that we're getting there without this momentum effect, I think, is a very healthy sign.
- Hey, Jurrien. It's Julie here. It's good to talk to you. Let's talk a little bit more about that participation piece, right? It seems like everybody is asking these big bank CEOs about crypto these days. We had Jamie Dimon weigh in recently-- still a skeptic. Someone asked Gorman about it today, James Gorman of Morgan Stanley. He said he doesn't think it's a fad, but at the same time, he said it's not yet a huge part of their demand from clients.
And so as you look at this network effect, and if it's not the momentum traders and we're looking at who is increasingly in crypto, is there a way for us to know, is it coming from big financial institutions, for example? I mean, Fidelity also has, for that matter, a crypto trading operation. So what do we know about that?
JURRIEN TIMMER: Yes. So I think it's maybe a mixture of all. You know, I've been in meetings with large corporate plants, whether it's their pension side or their treasury side. I think there probably still some hesitancy on that front, in terms of taking on Bitcoin as an asset, just because of the regulatory risk, which I think will be resolved over time. And that, actually, it will be a positive, because it will legitimize the space. But there's the volatility, which I don't think is going to go away because it's a feature of the price in elasticity of Bitcoin, right?
In other words, if there's more demand, you don't get a supply response because the supply is essentially set in stone. So the volatility is kind of inherent in it. But there's the retail side. I mean, you can buy Bitcoin even without an ETF. You can buy it in many different ways. And I do think there is a lot of interest. We're seeing that at Fidelity Digital Assets as well. We've done surveys, and certainly, there's increasing interest in the space.
But you know, it is a an aspiring asset class, coming of age. It's not without risk, and that's, I think, what you see expressed by some of the CB CFOs that you mentioned. But you know, it's one of those things where when you have a small network, it's easily disruptable, right? It can be regulated, hacked. It can be competed away. But the bigger the network is, which is what Metcalfe's law says, the more impenetrable it becomes. And I think Bitcoin now, especially with the level, the second layers being applied to it, and that, hopefully, will overcome the lack of scalability, which comes from being a decentralized ledger.
I think that that's where the promises that Bitcoin actually can become, not just a store of value, but also a payment system, which it isn't really now because it's too bulky, it's too slow. But I think that is the hope, and the bigger the network gets, the more powerful it becomes. And then it's going to be harder and harder to ignore.
- Jurrien, I caught a tweet from you, a good tweet, showing a good chart, and you were talking about the market looking a little bit wobbly here or starting to wobble. How concerned are you about the market into year end?
JURRIEN TIMMER: All right, we're talking about the stock market, right?
- Stock, not Bitcoin. We know where that's going.
JURRIEN TIMMER: Yeah, yeah, yeah. So the market's in a transition point. And by that, I don't want to make that sound like a bearish occurrence, because I don't think it is. But we're in that seasonal time frame, of course, where people like to worry. And we are in a little bit of a wobble. You know, we're down-- not right this moment, but we have been down about 5% from the highs, which, of course, in the grand scheme of things, is nothing for the stock market.
But we're in that mode where-- we're in earnings season-- that earnings growth is starting to peak, albeit at extremely high levels, plus 50%. And that's happening at a time where valuation multiples are starting to compress. And that's also happening at a time where the Fed is starting-- is going to be, presumably, starting to remove liquidity, right? So the consensus thinking is they're going to start tapering in November, by $15 billion a month, and they'll be done with asset purchases by the middle of next year. And then late next year, presumably, they'll start to raise rates.
So you got the removal of liquidity, you've got a peak in earnings growth, and you have valuation multiples going from expansion to compression. And that doesn't mean a bear market, by any means, but it does mean that there's a lot of things going on, where there's a new chapter coming, which is kind of the mid-cycle chapter, and taking over from the early cycle chapter. And the distinction is that during early cycle, so coming off of a big bear market, which, of course, happened a year and a half ago, you have this massive, v-shaped recovery that is entirely driven by valuation, because price typically bottoms before earnings. Then earnings joined in and, of course, Q1 and Q2 were massive earnings growth quarters, and I think Q3 will be the same, but at a at a slightly lesser pace.
So we're just transitioning into a different mode, and one where, historically, the market still goes up, but it goes up kind of according to the long term trend, which is about 10% per year, and not like the numbers we saw over the past year, which was basically 100% a year. Obviously, not sustainable. And we saw the same thing in 2010 after the GFC lows, when QE1 was supposedly ending, and we kind of got a wobble there, and then the markets sort of flattened out or went more up in line with historical trends. Saw the same thing in '04.
So I think that's what I'm seeing, and I think the wobble is kind of part of that transition.
- We will be on wobble alert here at Yahoo Finance. Jurrien Timmer, Fidelity Investments Director of Global Macro. Good to see you today.