Fidelity analyst: Bitcoin network remains on track

Jurrien Timmer, the director and analyst of global macro at Fidelity, provided an updated analysis of the equities market and Bitcoin, highlighting Bitcoin’s consistent growth driven by scarcity and central bank policies.

Timmer analyzed that Bitcoin’s value is influenced by its network’s size and growth, primarily propelled by its scarcity feature (stock-to-flow) and real rates (Federal Reserve policy). He said that Bitcoin’s adoption curve is right on track according to the growth of non-zero addresses.

“Bitcoin’s network is growing in line with a standard power regression curve. That means that the S-curve nature of Bitcoin’s network remains on track,” said Timmer.

However, Bitcoin experienced a 20.6 percent decline to $38,900 on January 24 from its peak this month. Previously, Bitcoin reached a three-year high of around $49,000 on January 11 following the U.S. Securities and Exchange Commission’s approval of spot Bitcoin ETFs, but has fallen steadily since.

Approximately $4 billion has flowed into the newly introduced spot bitcoin ETFs, with significant investments in products by BlackRock and Fidelity. However, analysts noted that $2.8 billion of these funds came from outflows from Grayscale, a formerly dominant fund in the regulated Bitcoin investment market that has transitioned into an ETF.

Another contributing factor is the sale of assets from the bankrupt crypto exchange FTX, as reported by Deutsche Bank.

Shares in Coinbase, the leading U.S. crypto exchange, also dropped around 4 percent in pre-market trading following a stock downgrade by JPMorgan to underweight from neutral. JPMorgan expressed skepticism about the impact of bitcoin ETFs as a catalyst, suggesting potential disappointment for market participants.

Despite the constant interest in Bitcoin, its ownership is concentrated among a few people, making the cryptocurrency susceptible to significant price swings triggered by major market events.

According to a November working paper from the National Bureau of Economic Research, Bitcoin’s behavior aligns with that of other tradeable assets. The recent value surge in early January, with nearly a 40 percent price increase since news of the SEC’s possible ETF approval in October, has led many investors to seek quick profits, contributing to market dynamics.

Stock market analysis

The Fidelity analyst also talked about the broader stock market. According to Timmer, small-cap equities trail larger stocks in the market, raising questions about the authenticity of an underway bull market. Historical records have shown that small caps will likely to catch up with their larger counterparts in the future.

“History shows that sooner or later the rest of the market does tend to follow suit. Often, small caps break out concurrently with large caps, as was the case during the 1960s and 1970s'” said Timmer.

However, Timmer said that sometimes there were lags, for example, after the S&L (savings and loan) crisis in 1990, it took 10 months for small caps to confirm in 1991. Moreover, following the LTCM (Long-Term Capital Management crisis) in late 1998, the confirmation took 14 months. Meanwhile, in the spring of 2019, following the 20 percent drop in late 2018, the confirmation took 20 months.

He also said the Russell 2000’s current position being 21 percent below its peak, raises the question of whether there has ever been a scenario where small caps were in a bear market while large caps were in a bull market. Timmer said the answer is no, although there were instances where it came close.

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