Bitcoin: Value Is In The Eye Of The HODLer
Investing.com | Feb 22, 2018 10:25AM ET
by Noreen Burke
According to Jessica Rabe, cofounder of market research firm DataTrek, every day that Bitcoin doesn't die makes it a little stronger. Bank of England Governor Mark Carney has a different view entirely. Speaking to students at London's Regent's University on Monday, he said of the world's most highly valuated cryptocurrency:
"It has pretty much failed thus far on...the traditional aspects of money. It is not a store of value because it is all over the map. Nobody uses it as a medium of exchange."
That succinctly illustrates just how broad the many views on Bitcoin currently are. Though some might loathe the asset class, others are cautiously coming around.
Bitcoin’s price has been slowly recovering from its recent low near $6,000 in early February. It's currently trading at almost $10,400 at time of writing, giving it a market cap of $179.54B . But it's neither the lows nor the highs that help bolster Rabe's point. Whatever happens, she notes—whether decline or recovery, and whatever the fundamental cause—as long as Bitcoin still exists it has proven its power to hold the imagination.
DataTrek's price estimate for Bitcoin this year is $6,470 to $21,000, with a midpoint of $13,735. Its price estimate is based on what the research firm sees as growing demand for private and portable wealth storage and on price volatility itself.
The total value of $100 bills in circulation equals $1.2 trillion and the value of high-denomination euro notes in circulation is $697 billion. Both the Federal Reserve and European Central Bank have been increasing their issuance of these notes in response to persistent global demand.
Bitcoin is an electronic form of such notes, Rabe says, and depending on how many individuals around the world accept Bitcoin as another method of wealth storage, it will increase or decrease in value.
At the same time, Bitcoin’s price volatility scares away short-term investors, but conversely, when prices recover it emboldens long-term holders and puts some steel in the backbone of potential buyers. Indeed, now that Bitcoin is recovering the lows of earlier this month, the question is whether markets will start to see global interest and adoption begin to pick up again.
Tracking global equities, which have been recovering following a steep selloff at the beginning of February, Bitcoin has gained around 12% in the past seven days.
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“We see the case for Bitcoin to continue to surge in the short term," says IronFX senior research analyst Peter Iosif, "however, [we] remain quite hesitant to call for a rally.”
Rabe observed that perhaps the best way to track Bitcoin’s price over the past year is to look at growth in online wallet accounts. When wallet growth accelerates, as it did in in the fourth quarter of 2017, Bitcoin sees dramatic appreciation.
Citing numbers from blockchain.info, Rabe said that average wallet growth peaked at 10.7% in December and increased by 7.7% during the fourth quarter. Bitcoin’s price rose by 203% over the same three month period.
January’s wallet growth of 5.7% was not enough to support prices and Bitcoin fell by 26%. Wallet growth has slowed again in February, Rabe says.
“Month to date (through the 13th) there are just 1.4% more wallets, so at current trends we’re probably looking at no more than 3% wallet growth for February 2018. If that’s the final number, it would be the worst print in 12 months.”
Taken together with data showing that global Google searches for Bitcoin are at three month lows, the crypocurrency's fundamentals and future price path become clearer.
“If it is washed out and prices can rebound, we’ll see it in the Google Trend data just as we did last year (December 2017 was the peak for online searches and Bitcoin prices). This should translate into renewed wallet growth (also a peak in December 2017),” Rabe says.
“In stock market terms, Bitcoin is a momentum trade,” she said. “To succeed, it needs to regenerate the public attention that drove Google search interest and wallet growth last year.”
Some prominent Bitcoin bulls argue that the currency could more than double in value this year in the wake of a crash from December’s record highs. Tom Lee, managing partner and head of research at Fundstrat Global Advisors last week predicted the cryptocurrency would hit $25,000 by the end of this year and $125,000 by 2022.
Lee expects increased interest from institutional investors, along with user account growth and usage to spur gains. But other analysts have warned about the potential for cryptocurrencies to crash.
Goldman Sachs said in a note earlier this month that most digital coins are likely to fall to zero. Ethereum founder Vitalik Buterin also recently warned that cryptocurrencies are a "hyper-volatile" asset class and "could drop to near-zero at any time.”
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