bitcoin

1. DURVA GOSAVI
Bitcoin, Boom or Bust

2. Bitcoin research can be summarized into four main Areas.
The technological issues, such as cryptographic issues, security, and blockchain
technology,
The public policy and legal issues, including the tax treatment, anti-money laundering
regulations and the legality of Bitcoin transactions
The political issues
The economic andas to whether Bitcoin performs the functions of money

3. “A purely peer-to-peer version of electronic cash would allow online payments to
be sent directly from one party to another without going through a financial
institution ...
We propose a solution to the double-spending problem using a peer-to-peer
network. The network timestamps transactions ... forming a record that cannot be
changed without redoing the proof-of-work”
The blockchain records all Bitcoin transactions in a public ledger that is
distributed worldwide, with no single authority.
What is Bitcoin?

4. Research Questions
 Why are traditional
valuation methods
insufficient to arrive at a
valuation of Bitcoin?
 The valuation
framework is
examined through the
lens of key
stakeholders and
offers implications for
researchers, investors,
and policymakers.
 How can companies &
individuals build on
the insights developed
in this framework for
Bitcoin valuation

5. It is assumed that the market is right and it is up to the analyst to convince others that
his valuation is a better estimate of value than the market.
The 4 types of Investments are: Assets, Commodities, Currencies & Alternative
investments.
 Assets, these generate cash flows, which can be valued currently and into the future.
Also risk analysis is factored into the computation as cashflows are expected to be
higher for more risk assumed.
Basic valuation methods

6. Commodities, these are investments that have a value because they meet a
need. commodities are often valued relative to their long pricing history and the
inflation rate.
Currencies, can be priced relative to other currencies. And are judged on three
key attributes; Unit of account; Medium of exchange and Store of value
The total market capitalization of crypto currencies in November of 2017 was
approximately $300 Billion Dollars. With Bitcoin having a 53% market share
Basic valuation methods

7. Bitcoin has remained relatively stagnant in it’s transactional adoption.
Due to 1) resistance to change from Fiat currencies 2) High volatility 3)
Competing crypto currencies with lower transactional costs & faster
transfer.
Out of the leading 500 internet sellers, just three accept bitcoin, down
from five last year
Basic valuation methods

8. Visa’s two US data centers use < 4% of the electrical consumption
of bitcoin but have over 800x the transaction levels.
Environmental Elements

9. Crypto Currency Exchange
Leverage up to 5x your
Deposit

10. SWOT-Bitcoin
• Strengths: Most recognized crypto currency, highest store of value, secure ,
highest market share. 6-10 Million users.
• Weakness: Technological limitations, relatively high transaction cost,
transaction takes too long for retailers.
• Opportunity: Wider financial market adoption, Regulatory acceptance. Store of
value.
• Threats: New crypto currencies, Especially Ethereum smart contracts, Ripple
supported by banking industry, etc.

11. Market based
measurement (NVT)
LegalPEST
Valuation Method
Identify Industry
Characteristics
IdentifyInvestment
Class(4Types)
Porters 5
forces
Eco system SWOT
Sharpe’s
Ratio
Environmental
The framework (IIV)

12. The Sharpe ratio is a widely used financial industry measurement
that uses standard deviation to measure a fund’s risk adjusted return.
The higher the ratio, the better the fund has performed relative to the
risk it has assumed.
Bitcoin has outperformed all major asset classes since Mid 2013
to October 2017 on a risk adjusted basis.
Also one of the main characteristics of Bitcoin is that it is
uncorrelated or has low correlation (-0.4 to 0.4), to most major asset
classes. (Burniske & White, 2017)
Valuation Method Sharpe Ratio

13. Implications
 Governments need to
address crypto currency
assets before they are “Too
big to fail”. By Issuing
Guidelines & Regulations
 This research
highlights the high,
risk adjusted returns &
diversification offered
by Bitcoin. Possible
maturing into a
financial instrument
 The medium term
potential for Bitcoin may
be limited to a ”store of
value.” However
Blockchain technology
has enormous potential,
similar to the start of the
internet in the early
1990s. “The focus will
be on the Blockchain
first, bitcoin second” Jay
Sidhu 2017

14. The Framework is limited to a Financial framework. An economic framework, including
economic valuation techniques such as money supply, cost of production etc.. were
outside of the current research scope but offer the opportunity for future research.
Limitations and Future Research

15. It is clear from the research, that valuation methods need to be supplemented by analysis of
the industry characteristics to enhance decision making and provide an overall assessment
of value.
The industry analysis reveals headwinds and legal, technological, economic, political and
environmental risks for Bitcoin. (Key risk factors)
• A new and novel approach could be to use investments in Bitcoin as a diversification and
risk reducing tool (Bitcoin futures?). Thereby providing 2 positive income benefits for
investor portfolios, enhanced diversification & superior risk adjusted positive returns.
Conclusion

16. Adler, J. (2014). American Banker. Retrieved from Should the CFPB Regulate Bitcoin?: https://www.americanbanker.com/news/should-the-
cfpb-regulate-bitcoin
Blockchain Info. (2017). Retrieved from https://blockchain.info/charts/n-transactions?timespan=all
Böhme, R., Christin, N., Edelman, B., & Moore, T. ( 2015). Bitcoin: Economics, Technology, and Governance. Journal of Economic
Perspectives, 213–238. Retrieved from Bitcoin: Economics, Technology, and: http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.29.2.213
http://komar.bitcheese.net/files/Measuring%20the%20Intrinsic%20Value%20of%20Cryptocurrency.pdf
Brito, J., & Castillo, A. (2016). Bitcoin A Primer for Policymakers. Retrieved from Mercatus Centre George Washington University:
https://www.mercatus.org/system/files/GMU_Bitcoin_042516_WEBv2_0.pdf
Buntinx, J. (2017, February). 4 Cryptocurrencies With Much Faster Block Times Than Bitcoin. Retrieved from The Merkel:
https://themerkle.com/4-cryptocurrencies-with-much-faster-block-times-than-bitcoin/
Burniske, C., & White, A. (2017, January). Bitcoin Ringing the bell on a new asset class White Paper. Retrieved from Ark Research:
http://research.ark-invest.com/hubfs/1_Download_Files_ARK-Invest/White_Papers/Bitcoin-Ringing-The-Bell-For-A-New-Asset-Class.pdf
References