‘Bitcoin has both, Ethereum doesn’t have the other’ and that’s why…
Bitcoin‘s price appreciation went for a toss earlier today when the top cryptocurrency hit a weekly low of $41,700. While most of this volatility can be attributed to new inflation-related comments by the Federal Reserve, some are fearing that resistance may be stronger this time around.
However, top investment management firm Fidelity has continued to remain bullish on the digital asset, even claiming in its recent report that BTC can be fundamentally distinguished from all other digital assets overtaking the market.
On a recent podcast, Fidelity’s Director of Global Macro Jurrien Timmer reiterated his company’s position by noting that the blockchain trilemma of ensuring scalability, security, and scarcity doesn’t plague Bitcoin like it does newer blockchains such as Ethereum.
“Bitcoin is not the same as Ethereum. I think that there is a place for both but I wouldn’t even count them as the same asset class.”
According to the exec, apart from having scarcity and supply components, Bitcoin also has the network effects component working in its favor. This is where the asset really derives its value from, Timmer added.
“Bitcoin is the only asset class where you have both that supply scarcity and that exponentially growing demand. Ethereum has one but it doesn’t have the other although they’re certainly trying to go in that direction… that may be the direction where they’re going into now in terms of managing the supply growth but that doesn’t mean it won’t change in the future and of course, Bitcoin can’t be changed, it’s immutable.”
The exec arrived at this conclusion by combining the stock to flow and S-curve models, both of which are considered holy indicators by many. Here, the former analyzes BTC’s supply dynamics by factoring in its scarcity. The S-curve analyzes adoption to determine how it is performing compared to previous technologies such as the Internet, mobiles.
Although the S2F model was relied upon heavily for $100,000 projections, its failure by “pointing to exponentially higher prices” has led to skepticism. This can be corrected by factoring in demand for the asset, as “if there’s not a demand for something, it doesn’t matter how scarce it is.”
He explained that by comparing Bitcoin’s adoption curve through its number of active addresses over the past decade with historic internet adoption and mobile subscription, “what you get is this exponentially growing curve.” Positioning both curves together gives a price prediction of $100,000 in the next two years.
“That number just comes from the intersection of those two models because that’s the last time that the supply model and the demand model meet and from that point on the demand model goes up and those two lines start to diverge for good.”