We would like nothing more than to recommend buying bitcoin. Having covered it for years, we know the story well. And it certainly fits the “Disruption” paradigm to a “T”. The Internet is to bitcoin/crypto currencies what the printing press was to paper money.
Despite all that, we just can’t get behind the story as an investment here.Last year we staked out a fair value for bitcoin that had a low-end price target of $6,400. And while it has bounced off that level a few times in 2018, the underlying fundamentals remain poor.
Yes, bitcoin has fundamentals, and they are easy to track:
#1. How many people around the world are showing fresh interest. We use Google Trends to track search queries for “bitcoin” as a proxy for potential new buyers. The latest data here is not good. It reminds us of the old saw, “How does a stock decline by 90%? First it goes down 80%, and then 50% after that.”
- Global Google searches for “bitcoin” are down 45% in the last 90 days, and 27% in the last month alone.
- The numbers are largely the same in the US: 46% lower over the last 3 months, and down 22% in the last month.
- The only consolation: global searches for “ethereum”, the second largest crypto currency, are also much lower of late. Global Google queries there are down 42% in the last 3 months and 47% in the last 30 days.
2) The growth in new bitcoin wallets (a proxy for new holders/users). The supply of new bitcoins grows at a glacial pace, with 81% of the eventual 21 million available already in circulation. That makes marginal demand an important determinant in setting prices. Given the lackluster interest in the prior point, no surprise that wallet growth is slow as well:
- May 2018 wallet growth: 2.4%
- April 2018 wallet growth: 2.1%
- Q1 2018 compounded monthly wallet growth: 3.7%
- Q4 2017 compounded monthly wallet growth: 7.6%
- Q3 2017 compounded monthly wallet growth: 4.9%
The comparisons between the 2017 back half comps (excellent) and 2018-to-date (poor) are stark and explain essentially all of bitcoin’s fall from grace this year. Simply put, history shows bitcoin wallet growth needs to be +5%/month to see meaningful price appreciation. Last month was less than half those levels.
Conclusion: bitcoin needs a new narrative in order to reestablish global attention (Google searches) and adoption (wallet growth). The good news is we’ll be able to see it coming with these tools. The bad news is there’s nothing on the horizon that fits this bill just yet. We’ll keep watching, though….