Share this page!

Jurrien Timmer Profile picture
Twitter logo
Apr 26 • 10 tweets • 2 min read
Will Bitcoin become a fixture? Here we see the number of global mobile phone users and global internet users, regressed against the number of BTC addresses. Both analogs support the idea that the Bitcoin (and Ethereum) network has a lot more growing to do. / 🧵 Image
However, the different slopes for mobile phones vs internet users presents a challenge for valuing Bitcoin. How do you calculate a present value of future growth when it’s not clear how steep the slope is? /2
Based on a regression between price and network size, we can create an estimate for the fair value of Bitcoin down the road, using these two different curves as guides. "Higher than now” is suggested, but “how high” is also important, depending on one’s time horizon. /3 Image
Based on the mobile phone adoption curve, my model suggests a fair value of $100k by the end of 2023, which would be a 2.5x return or a 58% CAGR. But using the internet adoption curve, Bitcoin might only be worth $58k then, which would be a 1.5x return or a 20% CAGR. /4
In Sharpe Ratio terms (assuming a 60 vol), the former would be 1.0 while the latter would be 0.3. A Sharpe Ratio of 1.0 seems attractive compared to the available investment choices out there (see below), but I’m not sure that 0.3 would be. /5 Image
Conclusions: The adoption curve for Bitcoin (and Ethereum) seems far from complete, suggesting further growth in the years ahead. /6
However, history shows a high degree of variability in how “up and to the right” the curve might get. This could make it more complicated to value Bitcoin, especially given its lack of cash flows. /7
In recent months, the slope of Bitcoin’s adoption curve seems to have flattened somewhat. While this may seem like a minor nuance, it could explain why the price action has become less robust lately. /8
All this suggests that valuing Bitcoin will continue to be a dynamic process, driven less by the momentum cycles of yesteryear, and more by what informed investors deem to be an attractive risk-adjusted expected return. /9
That suggests that the entry point for an investment in BTC is more important than ever, just as it is for every other asset class. /END

• • •

Missing some Tweet in this thread? You can try to force a refresh
　

Keep Current with Jurrien Timmer

Jurrien Timmer Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!

PDF

Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @TimmerFidelity

Jurrien Timmer Profile picture
Apr 26
Bitcoin will likely evolve from the early go-go days to a more mature two-way market, driven by network growth and the pace of adoption, less by scarcity (which is written in stone and mostly baked in). So let’s do a deep-dive on historical adoption curves. 🧵 Image
The chart above shows various S-curves going back to the early 1800s. Using the Historical Statistics of the United States database and the UN’s World Development Indicators, I found many interesting adoption curves in the US and around the world. /2
The chart shows growth of the US railway network during the early 1800s, cement & steel production during the industrial revolution of the late 1800s, the adoption of telephones around the turn of the century, and motor vehicle registrations during the early 1900s. /3
Read 19 tweets
Jurrien Timmer Profile picture
Apr 25
The sense of urgency about inflation is becoming palpable. Markets and the Fed seem to fear that inflation expectations will become unanchored enough that it will become difficult to put the genie back in the bottle. 🧵 Image
Inflationary shocks usually begin as something tangible— supply chain bottlenecks or sanctions, for example. The risk is that it becomes psychological, whereby businesses and employees start demanding more for their products and services, just in case the inflation persists. /2
That mindset can feed on itself, creating more inflation in the process. The Fed knows this, which is why it needs to nip this inflation thing in the bud. But with the Fed powerless to resolve the supply side of the inflation problem, it has to focus instead on demand. /3
Read 5 tweets
Jurrien Timmer Profile picture
Apr 20
Bitcoin, boring? Gasp! But boring is good if you want institutional adoption. 🧵 Image
Is the efficient market hypothesis replacing the go-go price discovery of yesteryear? The chart above shows Bitcoin’s fundamentals. The supply curve is dictated by the S2F model (h/t @100trillionUSD), and the demand curve is driven by network growth (Metcalfe’s Law). /2
Until recently, Bitcoin would often overshoot its intrinsic value to the upside during bull markets and to the downside during bear markets. It was a momentum game with little to no resistance, until the trend reached exhaustion. /3
Read 11 tweets
Jurrien Timmer Profile picture
Apr 18
Financial conditions are tightening again, which is what the Fed wants to see.🧵
Tightening the financial economy is the name of the game for the Fed right now. It aims to slow demand enough to slay the inflation dragon. /2
After a number of weeks of frustration, during which the Fed jawboned the market into tightening, only to watch financial conditions actually ease, the Fed's plan is back on track, as the chart shows. /3
Read 4 tweets
Jurrien Timmer Profile picture
Apr 15
What does gold know? With real rates rising as quickly as they are, the tried-and-true TIPS model suggests that gold should have fallen to 1600 or so. Instead, it is holding in like a champ at around $1950. Why? 🧵
Perhaps gold “knows” that if bond yields keep rising to the point of undermining growth, the Fed will be forced to dust off the 1940’s playbook by continuing/resuming its asset purchases indefinitely, much like the BoJ has been doing for years, and the ECB is hinting at now. /2
We are used to talking about a Fed put in the stock market, but what if in the future the put will apply to the bond market instead? If inflation becomes structural while the Fed financially represses bond yields, real rates could remain negative for a long time. /3
Read 8 tweets
Jurrien Timmer Profile picture
Apr 12
The stock market seems to be ignoring the Fed, perhaps even more so than first meets the eye. 🧵
If it was anticipating a prolonged, aggressive cycle by the Fed, the cost of capital that makes up the denominator in the discounted cash flow model (DCF) should be rising. But it's not happening so far. And depending on how the ERP is calculated, that disconnect is dramatic./2
A quick way to define the implied ERP is by subtracting the 10-year yield from the earnings yield, but that is not the most robust way to do it. A better method is to use the DCF model and to solve for what ERP is implied by the current S&P 500 index level. /3
Read 11 tweets

Did Thread Reader help you today?

Support us! We are indie developers!

This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Don't want to be a Premium member but still want to support us?

Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal

Or Donate anonymously using crypto!

Ethereum

0xfe58350B80634f60Fa6Dc149a72b4DFbc17D341E copy

Bitcoin

3ATGMxNzCUFzxpMCHL5sWSt4DVtS8UqXpi copy

Thank you for your support!

Follow Us on Twitter!

:(