Bitcoin perma-bull Tom Lee has again re-iterated his view that the value of bitcoin is significantly below it’s fair value; a fair value he believes is in the range of $13,800 and $14,800 given the current adoption profile.
His analysis is based on the estimated number of active wallets used to hold bitcoin and, given the analysis approach adopted, would indicate a theoretical bitcoin price of $150,000 if the number of bitcoin wallets approach a number of only 7% of the number of Visa account holders.
Tom Lee has been aggressively bullish for much of this year and has had year end targets for 2018 starting at $25,000 before cutting this forecast to $22,000, $20,000 then $15,000 before finally deciding not to give a forecast of the price level for the end of the year.
Tom Lee is not alone in underestimating the speed and extent of the fall in bitcoin prices since the beginning of 2018. Many Wall Street veterans jumped into the crypto market, launching hedge funds at the peak of the bitcoin boom only to see their fund NAV slashed as the bear market took hold. Many of these funds are now pulling back or closing down as these managers nurse losses often as much as 60% of assets under management.
This is in contrast to many crypto veterans who have either avoided the bloodletting or in some cases excelled – it appears that for once the wall street firms are the outsiders jumping in at the top of the market.
Some market participants identify the lack of progress in using bitcoin as a payment currency as part of the problem. Many in the market took last years boom as a sign that bitcoin could survive as a “store of value” – a token with no utilitarian use but simply held in a portfolio. Many in the industry started to refer to bitcoin as Digital Gold, implying that it could increase in value without any focus on its use in transactions.
This had the unfortunate side effect that many companies pivoted away from use cases where bitcoin could be used as a payment currency and, instead, focussed on it’s uses for trading and investment.
The aspiration for many in the industry became the launch of a Bitcoin ETF – something that has failed to materialize and certainly goes against the spirit of the original white paper, a distributed censorship free transfer of value that requires no trusted counterparty to hold and spend.
Bitcoin (and other crypto currencies) need to prove themselves by fulfilling their respective use cases. Only by gaining general acceptance will bitcoin really achieve the promise of the original White Paper.
When this happens then we could see Bitcoin achieving some of the price forecasts that the advocates strongly believe in – but we have work to do before this materializes otherwise we could see bitcoin end up as just another failed experiment.