We haven’t written about bitcoin and crypto currencies since late August, so here is an update:
#1. There is little momentum in the 2 key indicators we watch to predict future price moves:
- US Google searches for “bitcoin” are at their lows for the year just now, down 93% from their December 2017 highs.
- Worldwide searches are at similarly low levels, down 91% from their highs.
- September bitcoin wallet count will come in at about a 2.3% growth rate. This is slower than August’s 4.1% growth rate and July’s 4.7% rate.
- Takeaway: there is little interest in the space just now, which explains the recent difficult performance across most cryptos.
#2. Even with that decline in engagement, bitcoin is still by far the most recognized crypto currency:
- Worldwide Google searches for “bitcoin” outnumber those for “ethereum” by 8:1. Ethereum is the second largest crypto currency by market cap with a $22 billion valuation to bitcoin’s $111 billion total value.
- Searches for bitcoin run 4x the number of queries for “XRP/Ripple”, the third largest crypto by total value ($19 billion).
- Among US searches, XRP/Ripple does slightly better (bitcoin only outpaces it by 3x) but ethereum search counts look the same as the worldwide numbers.
- Takeaway: this is why bitcoin has held up modestly better than most other cryptos this year.
#3. To give you a sense of scale between global crypto currencies and a market you likely know well – US listed ETFs – here are a few comparisons:
- There are now almost as many crypto currencies as there are ETFs trading in US markets: 1,993 cryptos versus 2,136 ETFs.
- The largest ETF (SPY) is larger than the entire crypto currency ecosystem, with a market cap of $280 billion versus $209 billion in value for all crypto currencies.
- While the SPY represents 8% of all US ETF assets, bitcoin is 53% of the value of all crypto currencies. Recall that both were the “first movers” in their respective spaces (SPY launched in 1993, bitcoin in 2009).
- Takeaway: this is why every bitcoin investor dreams about an ETF.
#4. “Stable coins” – those that seek to tie the value of a crypto currency to the dollar and other fiats – are one “next big thing” in the space:
- Right now, the USD-tied Tether crypto has a $2.8 billion valuation. There is a long running controversy about whether there are actual greenbacks to back this up. Still, the crypto world remains supportive; Tether has not “broken the buck” by more than a penny in the last 90 days.
A recent academic paper also disproved the notion that Tether is just a bitcoin price crutch. Link here: https://www.coindesk.com/tethers-impact-on-bitcoin-price-not-statistically-significant-study-finds/
- The Winklevoss twins, fresh off their second unsuccessful attempt at a bitcoin ETF, have launched their own “stable coin”. Deposits will be held at an onshore bank and eligible for FDIC insurance. More here: https://cryptonewsreview.com/winklevoss-launch-dollar-backed-stable-cryptocurrency/
- Andreessen Horowitz just invested $15 million into MakerDAO, which operates stable coin Dai ($55 million in assets). This differs from the Winklevoss product in that the collateral is ethereum rather than a USD bank deposit. More here: https://cointelegraph.com/news/andreessen-horowitz-invests-15-million-in-stablecoin-firm-makerdao
- Takeaway: stable coins make sense to us as a way to harness the security and efficiency of the blockchain while mitigating price volatility.
Bottom line: we remain cautious on bitcoin and crypto currencies generally.Many technologies go through a “winter” – a phase in between the initial flush of enthusiasm and real-world impact. That’s where we are now. Still, there is plenty of investment from smart money still flowing into the space. Spring will come.