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Why buy bitcoins?

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An introduction to Bitcoin, it's price history and it's future potential.

An introduction to Bitcoin, it's price history and it's future potential.

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  • 1. Why buy Bitcoins? An introduction by Coin4ce January 28th, 2014 1
  • 2. What is Bitcoin? The world’s first decentralized, peer-to-peer, digital crypto-currency • Bitcoin is a new type of money that can be sent instantly through the Internet to anyone, anywhere in the world, without restriction, and for free. • Bitcoins are not controlled by any bank, government, or corporation; rather, Bitcoins are created and transmitted by a network using a peer-to-peer, open source distributed protocol, whose security is based on the immutable mathematical laws of cryptography (digital signatures and collision-resistant hash functions). • Bitcoin is very similar to gold, since it can be traded, it can be used as a means of saving, it exists in limited quantity (21,000,000), and it is created through a costly computational process called mining. • For a detailed review of what Bitcoin is, ask for a separate presentation on “What is Bitcoin”. 2
  • 3. Why is Bitcoin important? Bitcoin levels the financial playing field on a global scale • As Bitcoin awareness and acceptance grows, it will help eliminate disadvantages felt by people who currently lack access to a strong banking system and who have no protection from currency fluctuation. • As of January 23rd, 2014 Bitcoin’s market cap is above $10 Billion USD • In June 2013, the market cap exceeded $1 Billion USD • In June 2011, the market cap exceeded $10 Million USD • Anyone in the world with internet access can utilize Bitcoin as a payment method. • An informative, brief and simple video from Bitcoin.org: What is Bitcoin? When asked about Bitcoin, Bill Gates said "IT'S A TECHNOLOGICAL TOUR-DE-FORCE" 3
  • 4. Some Bitcoin Facts! Bitcoin: two years later, from controversial to cool • Many large and popular companies, such as Wordpress, Overstock.com, and Okcupid now accept Bitcoin. There are over 30,000 merchants globally now accepting Bitcoin. This number increases everyday. • Many prominent Venture Capital funds like Founders Fund, Andreessen Horowitz, Draper Fisher Jurvetson, and Liberty Ventures have invested in Bitcoin start-ups. • The Bitcoin network generates more than 1,000 petaflops (1 exaflop) of raw computing power. Tianhe-2, currently the world's fastest supercomputer, located at the National University of Defense Technology in China, generates less than 60 petaflops. Titan at Oak Ridge National Laboraroty is the second largest at under 30 petaflops. 4
  • 5. Who is using Bitcoin and why? Motivations of market participants Individual Users: Merchants: Investors: • International settlements: remittances to home countries faster and cheaper than wire transfers • Bitcoin Price Agnostic: can eliminate currency risk by converting straight to USD/other instantly • Long term buy and hold: retail investors and users, institutions entering market, miners • Privacy reasons: Okcupid • • • Security: lower risk of ID or CC theft by insecure 3rd party sites or fraudlent vendors Fundamental Demand: follows user demand rather than price runups/speculation Professional traders: hedge funds, high net worth individuals, high frequency • Short term buyers: new traders, reactive to hype cycle • Micro-transactions: previously cost prohibited • Easier implementation: no credit review or application process 5
  • 6. Who is using Bitcoin and why? The viral loop for market participants Individual Users: need a better way to send money securely, cheaply, globally, and privately. Unbanked populations worldwide need a secure value transfer system. Some users need to escape monetary pressures/restrictions (i.e. Argentina, Cyprus). Individuals Merchants Investors Merchants: need users to pay for goods and services in Bitcoin to save on credit card (or other payment system) fees. Merchants get instant access to a global market: banked or unbanked. Investors: need fundamental non-speculative demand to carry long term price appreciation. Continued investment fuels user growth and merchant adoption. Users and merchants are also investors when they choose to hold Bitcoins rather than convert them instantly. 6
  • 7. Why you should use Bitcoins It follows a viral adoption growth pattern Exponential growth is organic/viral adoption – a natural phenomenon Source: bitcoincharts.com 7
  • 8. Why you should use Bitcoins Viral growth on a logarithmic scale From October 10th, 2010, the price of Bitcoin (BTC) went from $0.10 USD/BTC to $1000 USD/BTC (on December 10th, 2013) – That’s an increase of 1,000,000% in 38 months $1000 USD/BTC $0.10 USD/BTC Source: bitcoincharts.com 8
  • 9. Google Search Volume for “Bitcoin” Two main adoptions waves - This is a graph of people searching for “bitcoin” in Google - The search spikes directly correlate to the price spikes from the previous two slides - 2nd Wave 3rd Wave 1st Wave Early Adopters Source: Google Trends Trough of Disillusionment 9
  • 10. Google Search Volume for “Bitcoin” The geographic locations of the searches The first adoption wave happened in the US, Europe, Russia, China, and Australia January 2011 – Only early adopters know about Bitcoin Source: Google Trends June 2011 – 1st widespread adoption wave 10
  • 11. Google Search Volume for “Bitcoin” The geographic locations of the searches 2nd adoption wave hits US, Europe, Russia, etc – Latam, India, Africa start their 1st adoption wave Coin4ce January 2012 – Trough of disillusionment, price of Bitcoin hits $2 USD/BTC Source: Google Trends March 2013 – 2nd adoption wave 11
  • 12. Google Search Volume for “Bitcoin” The geographic locations of the searches Adoption is currently becoming more widespread Many countries that previously never had an search volume are starting to learn about Bitcoin Source: Google Trends 12
  • 13. The price evolution of Bitcoin January 2011 – Only early adopters know about Bitcoin Satoshi’s paper is released in 2009, Bitcoin starts trading at Mt.Gox in September 2010 Source: bitcoincharts.com 13
  • 14. The price evolution of Bitcoin June 2011 – 1st widespread adoption wave Bitcoin rises to $30 USD/BTC from $1 USD/BTC in three months. $30 USD/BTC Source: bitcoincharts.com 14
  • 15. The price evolution of Bitcoin December 2011 – The trough of disillusionment The price of Bitcoin hits $2 USD/BTC, rebounds to $7 USD/BTC $7 USD/BTC $2 USD/BTC Source: bitcoincharts.com 15
  • 16. The price evolution of Bitcoin March 2013 – 2nd adoption wave After recovering from $2 USD/BTC, there’s a long period of steady demand-driven appreciation to $20 USD/BTC before it goes parabolic in it’s second adoption wave 2nd adoption wave – $250 USD/BTC Back to $10 USD/BTC Source: bitcoincharts.com Back to $20 USD/BTC 16
  • 17. The price evolution of Bitcoin Fall 2013 – 3rd adoption wave After closure of Silk Road, price goes from $100 USD/BTC to over $1000 USD/BTC, led in large part by demand in China and favorable sentiment from the US government $1000 USD/BTC Silk Road closure, $100 USD/BTC Source: bitcoincharts.com 17
  • 18. The third adoption wave is cooling Number of 1st-time Bitcoin downloads from Sourceforge -24 **Note this is only 1st-time users downloading the Bitcoin client, this does not reflect how much current users are using Bitcoins** Source: sourceforge.net 18
  • 19. Sentiment based cool-down analysis Assuming Then = Now; Run-ups followed by cool down period First Wave - run up to ~$30 Cool down to ~$2-8 range Drop off ~70-90% Source: bitcoincharts.com Second Wave - run up to ~$250 Cool down to ~$65-100 range Drop off ~60-75% Third Wave - run up to ~$1200 Cool down to ~$500-900 range Drop off ~25-60% (so far) 19
  • 20. Does Then = Now? What’s different this time around? Then: Now: • Bitcoin was controversial • Bitcoin is cool • Regulatory uncertainty • FINCEN’s regulation is partially clear • No VC backing • Major VC backing • Just US, EU, Russia, Australia • Just techies, traders, cryptos, etc. • Starting to go global: Latam, Africa, Asia • Starting to go mainstream in USA • 1st/2nd education wave • 3rd education wave Conclusion: “Then” does not equal “now”, and so …. 20
  • 21. What’s a fair price to start buying? Anything under $1000 USD/BTC? bullish: Long term upside for Bitcoin is veryNow? o Multitude of vested interests: major VCs, heavy investment, confidence o More educated: users and new countries creating demand o Better infrastructure: the ecosystem continues to evolve and improve with more start-up incentives o Merchant adoption: is at an all time high and growing rapidly o Higher word-of-mouth: the network effect causes accelerated adoption o Track record: Bitcoin has a 4 year track-record of consistent growth How high could Bitcoin go in the long run? 21
  • 22. What’s a fair price to start buying? Caveats to an aggregate analysis The market cap of Bitcoin is only ~$10 Billion USD - Very small in the world of finance - Government statements and other major news stories can influence short-term prices significantly - Impossible to predict exact shocks from these items Over the long run, Bitcoin has - Grown virally, and … - Returned to its fundamental value based on utility So what could be the long term value of Bitcoin? 22
  • 23. Long Term Value of Bitcoin Value Transfer System = Global Currency Markets o Daily global FX turnover is $4 trillion USD as of 2013 o Daily Bitcoin turnover is $100M USD o To capture 1% of the Forex markets… o Bitcoin turnover would have to increase to $40 billion USD… o This equals a 40,000.00% increase from today Source: http://bit.ly/1a3n6g3 23
  • 24. Long Term Value of Bitcoin Store of Wealth = Money Supply, Assets, Gold  Global known gold reserves = $7.35 Trillion USD  Total fiat money supply globally = $68.34 Trillion USD  Total known debt globally = $136.89 Trillion USD  Global other assets (stocks, real estate, etc.) = $198.1 Trillion USD  Total estimated Value of Global “Wealth” = $410 Trillion USD  Current market cap of Bitcoin = $10 Billion USD 1% parity means Bitcoin’s market cap increases to $4 Trillion USD, ~40,000.00% from today 24
  • 25. Long Term Value of Bitcoin What Bitcoin price does that correspond too?  12.26 of 21 million coins exist today  In 2016 there will be 15 million coins in circulation • in 2025 there will be 20 million coins in circulation  At 1% parity in 12 years, 2025, we have $4 Trillion/20 Million = $200,000 USD/BTC At 1% parity, the price of Bitcoin could be $200,000 USD/BTC o At 0.1% parity, the price would be = $20,000 USD/BTC o Today’s price = under $1000 USD/BTC o The price 38 months ago was $0.10 USD/BTC What is the time horizon? 25
  • 26. Long Term Value of Bitcoin What is the time horizon? 1st wave – Oct, 2010: $0.1 USD/BTC  July, 2011: $30 USD/BTC; that’s 300x in 9 months 2nd wave – Dec, 2011: $2 USD/BTC  April, 2013: $250 USD/BTC; that’s 125x in 17 months 3rd wave – Sept, 2013: $100 USD/BTC  December, 2013: $1000+ USD/BTC; that’s 10x in 3 months ??? 4th wave coming soon ??? 26
  • 27. Long Term Value of Bitcoin Value of the technology • One thing that is important to consider is that the technology, innovation and implications behind Bitcoin are fascinating. • Many people focus too much on the price and not how world changing the Bitcoin protocol can become. • Take a moment to read this article from Marc Andreessen, co-founder of one of the most successful Venture Capital firms of all time: • “Why Bitcoin Matters” 27
  • 28. Risks facing Bitcoin Threats to infrastructure: hacks, DDOS attacks, etc. Leads to a lack of confidence. o Growing pains: as more companies develop Bitcoin technologies, errors/bugs could be made o Nature of Bitcoin attracts hackers: new technologies attract top computer programmers, both good and bad o Lack of liquidity and critical mass in new geographies Historic hack at Mt.Gox on June 19th, 2011 left BTC at 1 penny after a hacker stole credentials from a Mt. Gox auditor 28
  • 29. Risks facing Bitcoin Government Intervention: FINCEN has spoken and… It isn’t vanquishing Bitcoin, but will keep a close eye on it. Could it? o To shut down Bitcoin, you’d have to shut down the internet o Governments aren’t sure how to handle Bitcoin, which can make people uneasy o Germany makes Bitcoins held for more than one year exempt from capital gains tax!  Bart Chilton, CFTC Commissioner 29
  • 30. Risks facing Bitcoin Moving into unknown technological territory Core Bitcoin technology unknowns: o A 1 exaflop+ distributed computing system has never been seen before o Current block chain size is 8GB … at 100GB, 1TB? o Shadow hashes, 51% attack o Quantum computing: D-wave sells first to Lockheed Martin D-wave Qubit Quantum Computer 30
  • 31. Risks facing Bitcoin “Alt”(alternative) Coins are Rising – over 100 exist o Technology evolves, trying to replace older versions with improvements As of January 24th, 2014 Currency Code Value of money supply o The “concept” is here to stay, which is o math based currencies and decentralized protocols Bitcoin BTC ~$9.88 billion Litecoin LTC ~$513 million o What are the other crypto currencies? Peercoin PPC ~$95 million Nxt NXT ~$70 million Mastercoin MSC ~$65 million o Litecoin is the second largest and was developed by Charles Lee of M.I.T and Google Source: coinmarketcap.com 31
  • 32. Coin4ce.com will monitor the risks And advise clients on what to do and when … 32
  • 33. Greenfield opportunity in Latam for Bitcoin Coin4ce will make it easy for people and businesses in Latam to buy, sell, and use Bitcoin. Our services will: • allow merchants to easily accept Bitcoin as a payment • allow users to instantly buy or sell bitcoins via local banking / payment methods • connect Latam to the global Bitcoin eco-system • set the stage for mainstream adoption across the region There are 590 million people in Latin America, ~67% Spanish speaking, ~33% Portuguese speaking Instant Transactions | Wallets | Merchant Services | Investments 33
  • 34. Our Team Adam Stradling: Founder and CEO • • • Former Co-founder and COO of Tradehill, Inc – largest US-based Bitcoin exchange Founder of 4CE – 5 years exp in BFSI consulting and recruiting, Chile based Co-founder of work4ce.me – Funded recruiting technology solution, Start-Up Chile Philippe Camacho: Co-founder and CTO • • • PhD in Computer Science, U of Chile – Cryptology and Computer Security Software Engineer and Agile Coach – 5 years experience building software solutions Cryptography researcher, published in: RSA, Latincrypt, and more Jacob Lundberg: Co-founder and Advisor • • • Equity Research Associate, Credit Suisse, New York Notre Dame MBA (Investments focus) – analyst at the Investment Office Lived / worked in Chile three years - Hispanic Studies undergraduate degree Antonio Vera: Software Engineer • PhD in Computer Science, U of Caen, France – Analysis of Algorithms Austin DeLonge: Operations Manager • 5 years experience in FinTech 34
  • 35. Coin4ce Services Brokerage, storage and management Brokerage: Storage: Management: • Consulting: Why should I buy Bitcoins? • Education: How do I safely access and store my bitcoins? • Advisory: As things change how do I know what to do? • Access: How do I buy Bitcoins? • Technology: What’s the technology behind the system? • Risk Management: Can I hedge? • Trust: Who do I give my money to and why? • Liquidity: How quickly can I move in and out of Bitcoin? What is the associated cost? • Protection: How do I know I’m protected from hackers, loss, damage, etc? Currently, there is no clear, consistent, and trustworthy source for management and advice 35
  • 36. Bringing Bitcoin to Latin America! Email us to learn more Adam Stradling: Founder and CEO | adam@coin4ce.com Philippe Camacho: Co-Founder and CTO | philippe@coin4ce.com 36

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