Bitcoin Could Be Worth 10-100x Current Price - Analyst
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After reaching an all-time high of $1242 last week, bitcoin is feeling gravity today and the virtual currency is trading down 7.8% to a price of $998. Despite the sell-off, however, the newly minted-currency is the talk of the town on Wall Street and now on Main Street. Today, analysts at Wedbush had the guts to discuss bitcoin's value and believe it could be worth 10-100x its current price.
Wedbush analysts Gil Luria and Aaron Turner see intrinsic value of bitcoin as a conduit in a new global crowd-funded open-source payment network. "Among other facets, we believe Bitcoin and its associated technology represent a potentially game-changing disruption to our covered payments companies," they said.
The analysts observe three key sources of demand for Bitcoin - 1. as a disruptive payment network technology, 2. an alternative uncorrelated asset class, 3. and a safe haven currency. However, they believe the payment network capabilities are the key to the sustainability of crypto currency, with Bitcoin the early leader.
"We believe that by decentralizing processing, allowing for market-based fees and adding new functionality, crypto currency technology provides a powerful alternative to branded networks. Initial benefits for crypto currency technology may be in processing micro transactions and cross-border payments, but the potential for innovation is significant. With a flexible fee structure and competitive price/lag dynamics, we believe Bitcoin is better suited to replace high-cost branded network micro payments charges. We believe cross border transactions would benefit from the ability to avoid currency translation or conducting the foreign exchange outside the payment network. We further believe crypto currency technology will develop new advantages over existing payment networks such as transaction-linked code, differential settlement fees/timeline and currency flow analysis."
The key to Bitcoin's success so far, and significant promise going forward, is in crowd-funding the development of the first new global payment network in decades, the analysts explain.
They see some evidence for this in the willingness of key countries (Germany, USA, China) to regulate, not shut down Bitcoin, in spite of the perceived risk to their sovereign currency. "More importantly in our mind is that with a decentralized structure even if a small number of countries choose not to interfere or are not able to interfere, Bitcoin's technologies are likely to thrive," they said.
They do believe there is a meaningful probability Bitcoin may not succeed, but this will most likely be a result of the emergence of a better crypto currency, they said.
Based on the order of magnitude of the overall opportunity and some very rough calculations they also believe scenarios exist by which a Bitcoin could be valued 10-100x its current price. "We believe rising Bitcoin prices help build the network thus entrenching its value, especially vis-à-vis other alternative coins/conduits. Based on this framework, we would postulate that current Bitcoin prices reflect a peak penetration of 1% of total potential demand in 10 years," they said.
The volatility in bitcoin's price will not likely end soon, they said. "We believe the volatility in Bitcoin prices is a result of an extended price discovery process as the market overcomes substantial friction and the very divergent set of outcomes. In terms of the broad divergence of outcomes (zero or 10x+), we think of Bitcoin as the equivalent of a biotech that had a molecule that may cure the common cold. Therefore, we do not expect volatility to subside anytime soon."
They see the long-term opportunities presenting themselves to payment-type-agnostic technology providers such as eBay. "For PayPal, Bitcoin represents another potential low cost funding method. PayPal is already incorporating private label cards, gift cards and miles into the digital wallet and we believe that with more regulatory clarity PayPal would likely embrace Bitcoin," they said.
Wedbush analysts Gil Luria and Aaron Turner see intrinsic value of bitcoin as a conduit in a new global crowd-funded open-source payment network. "Among other facets, we believe Bitcoin and its associated technology represent a potentially game-changing disruption to our covered payments companies," they said.
The analysts observe three key sources of demand for Bitcoin - 1. as a disruptive payment network technology, 2. an alternative uncorrelated asset class, 3. and a safe haven currency. However, they believe the payment network capabilities are the key to the sustainability of crypto currency, with Bitcoin the early leader.
"We believe that by decentralizing processing, allowing for market-based fees and adding new functionality, crypto currency technology provides a powerful alternative to branded networks. Initial benefits for crypto currency technology may be in processing micro transactions and cross-border payments, but the potential for innovation is significant. With a flexible fee structure and competitive price/lag dynamics, we believe Bitcoin is better suited to replace high-cost branded network micro payments charges. We believe cross border transactions would benefit from the ability to avoid currency translation or conducting the foreign exchange outside the payment network. We further believe crypto currency technology will develop new advantages over existing payment networks such as transaction-linked code, differential settlement fees/timeline and currency flow analysis."
The key to Bitcoin's success so far, and significant promise going forward, is in crowd-funding the development of the first new global payment network in decades, the analysts explain.
They see some evidence for this in the willingness of key countries (Germany, USA, China) to regulate, not shut down Bitcoin, in spite of the perceived risk to their sovereign currency. "More importantly in our mind is that with a decentralized structure even if a small number of countries choose not to interfere or are not able to interfere, Bitcoin's technologies are likely to thrive," they said.
They do believe there is a meaningful probability Bitcoin may not succeed, but this will most likely be a result of the emergence of a better crypto currency, they said.
Based on the order of magnitude of the overall opportunity and some very rough calculations they also believe scenarios exist by which a Bitcoin could be valued 10-100x its current price. "We believe rising Bitcoin prices help build the network thus entrenching its value, especially vis-à-vis other alternative coins/conduits. Based on this framework, we would postulate that current Bitcoin prices reflect a peak penetration of 1% of total potential demand in 10 years," they said.
The volatility in bitcoin's price will not likely end soon, they said. "We believe the volatility in Bitcoin prices is a result of an extended price discovery process as the market overcomes substantial friction and the very divergent set of outcomes. In terms of the broad divergence of outcomes (zero or 10x+), we think of Bitcoin as the equivalent of a biotech that had a molecule that may cure the common cold. Therefore, we do not expect volatility to subside anytime soon."
They see the long-term opportunities presenting themselves to payment-type-agnostic technology providers such as eBay. "For PayPal, Bitcoin represents another potential low cost funding method. PayPal is already incorporating private label cards, gift cards and miles into the digital wallet and we believe that with more regulatory clarity PayPal would likely embrace Bitcoin," they said.
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