LA-based financial services and investment firm Wedbush Securities released a report in which it predicts that bitcoin will trade for US$400 by next year. The firm furthermore suspects that Bitcoin Investment Trust's NASDAQ traded bitcoin derivative GBTC will keep pace, and accordingly advises investors to buy the over-the-counter security.
The Wedbush report, authored by Gil Luria and Aaron Turner, calculates the expected future value of bitcoin by comparing it to existing players in the payments industry. The report predicts that the Bitcoin payments network could end up powering 10% of online payments, and up to 20% of global remittances by 2025. The synopsis of the report reads:
“We believe bitcoin and its associated blockchain technology have the potential to disrupt the existing financial infrastructure over the next few years. We believe the value of the bitcoin currency (BTC) will benefit from this trend and therefore are initiating coverage of GBTC with an OUTPERFORM rating and US$40 price target.”
As bitcoin fits in a category better compared to assets than that of existing payments companies, Wedbush argues for a unique model to estimate its future value, adding up to US$400 by 2016. And since each GBTC stock represents 1/10th of a bitcoin, Wedbush expects GBTC to trade at US$40 12 months from now, or about US$10 (or 33%) higher than its current rate. Wedbush writes:
“We see BTC as equity in a payment network, much like Visa, MasterCard and PayPal, which we also cover. However, since BTC does not generate cash flow like equity, we use a commodity-like valuation approach that values each BTC as a 'packet' in limited supply that fuels the bitcoin network. The more the bitcoin network is utilized for current and future applications, the more demand for the packet. By aggregating the utilization of the various applications, we arrive at our US$400 BTC price target, which translates to $40 per share of GBTC.”
Interestingly, Wedbush offers an alternative calculation in the report as well. This approach takes three wildly varying outcomes into account, of which a weighed average similarly adds up to US$400.
One of these wildly varying outcomes is the so-called “PayPal outcome,” in which bitcoin will compete with existing payment companies as described above. But alternatively, Wedbush predicts that a “Napster outcome” – in which Bitcoin will be taken over by a superior system and becomes worthless – has a 50% chance of happening. And perhaps most notably, Wedbush expects there is also a 0.02% chance of an “Internet outcome,” in which case bitcoin becomes the global working capital for trade and will be valued at a million dollars.
It's not the first time Wedbush has shown interest in Bitcoin. Over the past years, the investment firm has been a notable observer of and pioneer in the cryptocurrency pace. Luria – one of the authors of the report – has shown particular interest in the cryptographic currency from as early 2014. Wedbush itself, moreover, pioneered in February of that year to become the first U.S. financial institution to accept bitcoin as payment. And last November, the firm announced a landmark partnership with Bitcoin company Buttercoin.
GBTC is a bitcoin derivative based on Barry Silbert's Bitcoin Investment Trust (BIT). Although GBTC is technically not an exchange traded fund (ETF), Barry Silbert's Bitcoin Investment Trust (BIT) has made use of a legal loophole to allow public fund holders to sell their shares after holding them for a year. As such, GBTC is the first and only means to buy and sell bitcoin derivatives with a standard brokerage account in the US.
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