Cause and Effect
FX and Rates | Global
05 December 2013

Bitcoin: a first assessment
limited supply and divisibility
 Tamper-proof,
We believe Bitcoin can become a major means of payment for e-commerce and
may emerge as a serious competitor to traditional money transfer providers. As a
medium of exchange, Bitcoin has clear potential for growth, in our view.

Store of wealth for the underground economy?
It has been reported that Bitcoin may help users avoid high taxes, capital controls,
and confiscation. The correlation between CNY's share of volume of all Bitcoin
exchanges and price of Bitcoin is high and rising (Chart 1). That said, the fact that
all Bitcoin transactions are publically available and that every Bitcoin has a unique
transaction history that cannot be altered may ultimately limit its use in the black

Bitcoin’s role as a store of value can compromise its viability as a medium of
exchange. Its high volatility, a result of speculative activities, is hindering its general
acceptance as a means of payments for on-line commerce.

David Woo

+1 646 855 5442

Ian Gordon

+1 646 855 8749

Vadim Iaralov

+1 646 855 8732

FX and Rates Strategist
FX Strategist
FX Strategist

Table of Contents
What is Bitcoin?
A cost-benefit analysis
How to assess Bitcoin’s fair value?


Fair value?

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Is Bitcoin a bubble? Assuming Bitcoin becomes (1) a major player in both ecommerce and money transfer and (2) a significant store of value with a reputation
close to silver, our fair value analysis implies a maximum market capitalization of
Bitcoin of $15bn (1BTC = 1300 USD). This suggests that the 100 fold increase in
Bitcoin prices this year is at risk of...

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