7 insights from Needham’s Bitcoin research report

On a flight back to Austin for holidays. Just read this Needham & Company research report on bitcoin which carries a price target of $848 (bitcoin just crossed $900 in its recent jump). Among institutional researchers and analysts that I’ve followed, Needham seem to “get” bitcoin best. Some notes from my pdf:

Bitcoin’s daily liquidity is equivalent to a mid-cap stock, and its daily return volatility is equivalent to a small-cap stock.

The US daily dollar volume = $28M

GBTC – one of the only exchange listed products that provide bitcoin exposure – has a market cap of $160M and $9M in daily trading volume

Worldwide gold supplies have grown annually between 1-2%. The US monetary base historically grew between 3-5% a year until 2008 when it began to grow 20, 30% a year

Immediately after Brexit, bitcoin was among the top three assets to show a price increase, alongside gold and the US dollar

An estimated 75% of bitcoin is held as digital gold – a store of value investment. This is about $10B of bitcoin’s current $14B market cap. By comparison, the worldwide gold market is $7 trillion, and $84 billion is invested in gold ETFs.

In the ongoing blocksize debate, Needham believes Core is “prudently conservative” given the value at stake, and agrees with the philosophy of shifting innovation to 2nd layer services, to the edges of the network.

Here are more notes from Needham’s research call with well-known bitcoin participants.

Hi! I write about habits and spirituality and random whatevers. Click here to see the daily habits that I track. Find me on Twitter @kgao.

Notes from Needham’s Bitcoin update call: bitcoin as digital gold and internet cash

For those interested in bitcoin, I read the full transcript of this November call and wanted to share some highlights. You can read or download the PDF transcript here.

Instead of writing notes, I’m just quoting participants verbatim. My takeaways: in the developed world bitcoin is digital gold and in the developing world it’s internet cash. Capital flight is not a big driver of price. There is no real cryptocurrency competitor given bitcoin’s size and network effects and ecosystem. Block size limit has slowed growth but there are promising solutions on the way.

Spencer Bogart (Needham & Company)

  • we find that Bitcoin’s average daily trading volume resembles that of the average security in the S&P midcap 400.
  • there was something on the order of $500 billion of capital flights in China in 2015. And if we think about $500 billion, if any significant percentage whatsoever was using Bitcoin, the price would necessarily be significantly higher. (me: this is also confirmed by Wences)

Wences Casares (Xapo)

  • in the developed world, we see a small number of customers with a large number of coins that do not move very much and they’re not being used for payments. […] It’s, I think, what you refer to as Bitcoin as digital gold.
  • Developing world: And their number one use case there that we see are people who have a smartphone and don’t have a credit card, and they have cash that they’re ready to spend, that they want to spend digitally. And because they don’t have a credit card, they are turning the cash into digital money, Bitcoin
  • But since January, when we began to have more and more fuller blocks and the transaction fees began to go up, we have kept growing by a much more linear fashion, not exponential, until – the way we were growing them until January
  • And in all of those large markets, when we interview our customers, and we see why they are using us, and there’s – the vast majority of them do not have an interest or understanding of Bitcoin per se. This is something they found to be able to turn the cash that they have […] They want to spend on something digitally. […]
  • Bitcoin has that dimension, has network effect around how many people are using it. And depending on how you count, Bitcoin has between 10 to 15 million users, and it’s adding around 30,000 new users a week. Those 30,000 new users that Bitcoin adds every week are more than all of the other cryptocurrencies have ever added combined.

Adam Back (Blockstream)

  • I mentioned fungibility, so I think it depends on the uses obviously. […] It’s one of the attractive things about Bitcoin is that it’s very permissionless, cash-like, payment hubs, strong finality.
  • In the layer two and Lightning side protocols, it’s no longer a broadcast mechanism but the payments are sent, routed much like fetching a web page from the web service in that other people that are not in the path of the transaction would not see the payments. So that improves privacy obviously as a side effect, but greatly improves scalability.
  • So there was some evidence that people who, you know, were slightly aligned with one chain would switch chains because it’s more profitable, and many more switched to mine Ethereum just as a way to sell it and buy Bitcoin. So I think that dynamic could exist in Bitcoin.
  • I think that’s one of the hard and fastest rules in Bitcoin, the 21 million issuance cap on Bitcoin.
  • And my personal view is that permissionless and censor-resistance is quite interesting, since you know, we already do have PayPal, and if users are just trying to make PayPal like small-value transactions, they may not be worried about censor-resistance, and we are then directly competing against PayPal.

Jerry Brito (Coin Center)

  • law enforcement generally feels that they have a handle on illicit uses, and that they have tools to investigate and prosecute illicit uses
  • If people have to ask me, what is Bitcoin? And they will say, “Well look, the IRS says that Bitcoin is property. It’s not money.” And the SEC has said that – well they haven’t but they probably will say that cryptocurrency could be a security. And the CFTC has said it’s a commodity like gold. And these things seem to be in contradiction with each other and isn’t that a problem for Bitcoin? And the answer is no.

Hi! I write about habits and spirituality and random whatevers. Click here to see the daily habits that I track. Find me on Twitter @kgao.