Cryptocurrencies Will Survive Without Intrinsic Values

1. Tuesday, December 03, 2013
Bitcoin Value
It is a Transaction Device
Richard X. Bove
Vice President Equity Research
Financial Sector
bover@raffcap.com
813.388.2900
Cryptocurrencies Will Survive Without Intrinsic Values
A client raised three issues about Bitcoins which I believe to be correct:
1.
2.
3.
A Bitcoin has no intrinsic value.
Investors and speculators are driving the price of the Bitcoin not transactors and this is dangerous.
The volatility in the price of Bitcoins will render them useless as transaction devices.
There are some key points missing in attempting to understand this phenomenon, however:
1.
2.
3.
4.
5.
6.
7.
8.
Bitcoins were not developed to replace gold even though they were patterned on the nature of gold as a currency.
Bitcoins were developed to facilitate transactions. Gold is too heavy and bulky and cannot be be used for this purpose any
longer, particularly in global markets that transact in quadrillions of dollars in payments.
Credit cards do not have intrinsic value either but they are normally used to facilitate transactions. Bitcoins should be
thought of as a low cost replacement for credit cards and other payment mechanisms like the old SWIFT.
While it is true that the price variations in Bitcoins are destroying their ability to function as a transaction device, the
concept of using a third party digital currency to make payments is appealing.
Anonymity is appealing to some non-criminal users, also.
If the Chinese gain control of the Bitcoin as I believe they will, the price volatility will end, and the Chinese will have gained
control of an international transaction device that can be utilized outside of the dollar and the control of the United States
government. This is strongly desired in multiple nations and would not be good for the United States.
If Bitcoins fail because price speculation has destroyed their value as a transaction device, they will be replaced by other
digitally driven payment mechanisms – other cryptocurrencies.
Bitcoin is the first to market with this concept. It is not the last and there will be other more refined approaches but make
no mistake one or many digital currencies, which are not controlled by governments, are coming.
The shadow banking market is likely to use cryptocurrencies as they become more stable mechanisms for transactions. It is quite
possible that banks may move in the same direction at some point. FinCen is allowing use of the coins and the Senate has raised no
objections to this point. This is a phenomenon that must be monitored by anyone interested in banks that transact in dollars.
PLEASE SEE IMPORTANT DISCLOSURE AND ANALYST CERTIFICATION LOCATED IN THE APPENDIX OF THIS REPORT.
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2. Tuesday, December 03, 2013
Bitcoin Value
PLEASE SEE IMPORTANT DISCLOSURE AND ANALYST CERTIFICATION LOCATED IN THE APPENDIX OF THIS REPORT.
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3. Tuesday, December 03, 2013
Bitcoin Value
Financial Analyst
Institutional Sales
Richard X. Bove
Vice President Equity Research
bover@raffcap.com
813.388.2900
Joseph Bove
Vice President Institutional
Sales
bovej@raffcap.com
646.572.3378
Appendix: Analyst Certification and Other Important Disclosures
Ed Bugniazet
Managing Director
bugniazete@raffcap.com
646.572.3389
Ed Perley
Perleye@raffcap.com
646.572.3386
Analyst Certification
I, Richard X. Bove, certify that with respect to each security or issuer that I covered in this report; (1) all of the views expressed
accurately reflect my personal views about those securities or issuers; and (2) no part of my compensation was, is, or will be, directly or
indirectly, related to the specific recommendations or views expressed by me in this research report.
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4. Tuesday, December 03, 2013
Bitcoin Value
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