Long Term Outlook For Bitcoin Improving

Long Term Outlook For Bitcoin Improving

With support holding over time at current levels, the crypto market could be preparing to resume a pursuit of higher levels of price

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Through 2018 bitcoin has seen a steep down trend form which is in stark contrast to the crypto momentum and mania we witnessed for much of 2017.

Most remarkable is not the steepness of the line however, its the resilience and support the cryptocurrency has seen in a zone through the mid $7,000 level.

While the highs have most certainly been lower, this range of support has withstood several tests, both of the fundamental and technical variety, and appears to be firm.

The dynamics that in our view impact the price of bitcoin have also stabilized around current levels, and we believe could begin a recovery and improvement phase through the back half of the year.

 

Bitcoin Usage and Transaction Volume

Bitcoin has historically correlated with the number of unique users and transactions. In simple supply and demand terms, the more people are using bitcoin, the more in demand it becomes and the higher the price is.

Through the end of 2018 we see indications of modest improvement on both indicators. While we see no basis for the momentum of late 2017, an improvement in usage and transactions could drive up a significant increase in price from current levels. 

The below visuals contain our base case for number of users and transactions and ultimate bitcoin outlook through the end of the year.

 

visuals and model built by Jason Pfaff in Trefis

 

New Narrative For Bitcoin Needed

A major driver for an ascension in price that is currently lacking is a new broad narrative regarding bitcoin. 

The mania of 2017 fed regulatory scrutiny through the first quarter of 2017.

Both of those themes have ebbed, yet no new macro crypto theme has emerged to replace it. We see the potential for these themes to move in cycles, and part of the improvement in the level of adoption we see in bitcoin through 2018 is attributable to an assumption that over the longer term bitcoin continues to mainstream. Further, some of the regulatory oversight and safeguards, while normally seen as bearish for bitcoin, could result in more robust long term demand from institutions and indivdual investors looking for safer exposure to bitcoin.

One signal we have traced closely to monitor levels of interest and demand for bitcoin is Google search volume.

Over time, there is a relationship between internet searches for bitcoin and the price. We believe this is due to bitcoin being purchased online, and the first step to securing a crypto wallet and buying bitcoin, is to search online for it.

There is no question bitcoin search interest has waned recently, and that lack of interest has resulted in less demand.

We are looking for a shift in the narrative and for a more bullish posture to resume in the second half of the year. For that to begin to form, we would need to see a search volume index value about double where we are today. Given bitcoins history, that is certainly in range.

 

data via Google Trends and Bitfinex, visual and analysis by Jason Pfaff

 

Bitcoin Outlook

We see the current range continuing to hold and for bitcoin to exit the current wedge pattern to the upside. We will closely monitor transaction volume and the number of unique users for signs of this trend forming, in additon to search volume for signals of new organic user growth.

We could see a level around 8,000 for the end of June, and a slowly forming uptrend from there.

 

chart built by Jason Pfaff in TradingView

 

Risks to this outlook include negative newsflow including any major hacks, security threats or other stories that could dampen new user interest.

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