Longtime readers – back to our old brokerage days – will recall we were the first Wall Street analysts to write about bitcoin, back in 2012. Intrigued by a post authored by our friends at Zerohedge, we did the usual analytical work, talking to people in the space and learning about the technology. Since then, we’ve seen bitcoin “boom”, “bust” and “boredom” in roughly equal measure.
On April 2nd we noted that bitcoin’s fortunes seemed to have stabilized. Since bitcoin, like any other technology, lives and dies by adoption rates we look at search volume trends on Google for “bitcoin” and wallet growth as our two fundamental indicators. Both had stabilized in early April, and bitcoin was trading for $4,750.
Fast-forward to today and a bitcoin goes for $6,110, up 28% since that last note and 64% on the year. So how do our indicators look today?
- Google searches for “bitcoin” have actually risen modestly in the last 30 days. There was a price spike in early April that drew significantly more (3x) searches than March. Since then, worldwide search volumes are still running about 25% higher than prior month levels.
- Wallet growth in April was 5.7%, double the rates of January (2.9%), February (2.9%) and March (2.5%). Trailing 30-day wallet growth as of today is even stronger: +6.5%.
So the data is pretty clear: global interest in bitcoin is rising and that is translating into new users opening wallets and, logically, higher asset prices – but why? Three thoughts:
#1: Bitcoin is a momentum trader’s dream, and there are millions of people around the world watching this one asset. Yes, the market structure for bitcoin – and every crypto currency – is very opaque. But the wallet growth data shows this move isn’t purely market manipulation, but rather organic interest in the asset. And then there is the limited supply of bitcoin to consider, which amplifies volatility. The blockchain doesn’t do buybacks when prices fall or issuances when they rise.
#2: While bitcoin has been through a deep winter since its late 2017 highs, blockchain technology (decentralized computers maintaining/updating records secured by cryptographic code) has caught on across a variety of industries. So far, it’s been large companies developing their own proprietary systems. But if blockchain continues to catch on, bitcoin and other cryptos could in theory be the backbone for wider adoption. That is what got people excited about all this 3 years ago, after all.
#3: Last year’s price collapse cooled many institutional investors on the idea of diversifying into bitcoin and other cryptos, but a lot of plumbing got built in 2018 despite that. Fidelity, for example, developed a custody offering and will reportedly start offering bitcoin trading to professional money managers in the next few weeks.
Worth remembering: bitcoin retail investors perennially try to front run institutional money – that’s why prices peaked around the start of bitcoin futures trading in late 2017. If bitcoin continues to rally in 2019, and if traditional assets like stocks falter, retail will expect institutional capital to make its long-awaited appearance in crypto markets. And they will push the price up ahead of that.
Bottom line: we’re impressed with the recent Google and wallet data, which tell us this move likely has some room to run. We don’t have a dog in this fight – our collective crypto ownership is well less than $3,000. But after a long winter for bitcoin and crypto currencies it is nice to see a bit of spring.