SPEEDA INSIGHTS_Next Stop for Bitcoin Price Onwards and Upwards

01
Next Stop for Bitcoin Price: Onwards and Upwards?
By Supun Walpola - SPEEDA Analysis Team
Bitcoin was introduced in 2009, and its value has since grown exponentially. It reached parity with the
US dollar (USD 1 = BTC 1) in early 2011. Today, a Bitcoin is worth USD 4,283 (as of 15 August 2017).
Bitcoin’s price rose more than 300% YTD in 2017, while top altcoins such as Ethereum (up ~3,500%)
and Ripple (up ~2,400%) bettered Bitcoin’s increase, overtaking more conventional asset classes with
significant leads. The S&P 500 rose ~8% and gold ~11% as the US dollar fell ~9%. Meanwhile, concerns
about a speculative crypto-bubble have already emerged. That said, altcoins are rapidly taking wealth
away from Bitcoin. Bitcoin accounted for nearly 90% of the overall cryptocurrency market
capitalisation in January 2017; by August 2017, this had fallen to ~50%.
Bitcoin has a history of boom and bust cycles, with three notable peaks in its eight years of circulation
(in June 2011, April 2013, and November 2013). Leading up to each of its past peaks, Bitcoin has traded
at a transaction value (TV) multiple of ~50-70x, and this exceeded 100x in the post-boom periods, as
high prices failed to justify an active transaction demand. In comparison, the average TV multiple YTD
has been 62x, indicating that the recent surge in Bitcoin price is broadly supported by transactions.
Quantifying Bitcoin’s intrinsic value continues to be a challenge. This makes speculation inevitable, and
Bitcoin will consequently continue to experience boom and bust cycles. Our technical analysis indicates
that Bitcoin could peak next at ~USD 7,800 by late 2018, before seeing a ~70% correction.
20170825

02
Recent Bitcoin Rally Supported by Fundamentals
Bitcoin has historically experienced boom and bust cycles mostly due to speculation. High Bitcoin
prices during boom periods have often not been supported by active transaction demand, either to
buy goods and services from merchants or to simply trade, and have eventually led to drastic declines
in value.
Transaction Value Multiple: PE Ratio for Bitcoin
The transaction value (TV) multiple is the ratio of Bitcoin market capitalisation to its daily transaction
value, i.e. the value of a Bitcoin for a dollar’s worth of transactions. The TV multiple is similar to the
trailing PE ratio of a stock. The PE ratio reflects how much an investor is paying for a dollar of earnings,
or, in a more economic sense, for a unit of utility (utility for a Bitcoin holder is engagement in
transactions). Alternatively, the inverse of the TV multiple shows the percentage of total wealth in
Bitcoin actively used in transactions. The Bitcoin TV multiple averaged ~80x over 2011-17, yet includes
post-boom periods where the multiple was over 100x, where less than 1% of wealth was actively
transacted. During the periods leading up to a boom, the TV multiple has averaged ~50x-70x. This
implies that ~2% of value was transacted daily.
Bitcoin had been trading at an average TV multiple of 68x leading up to the 2013/14 boom. It reached
196x in the post-boom period. By the time the TV multiple reached 100x, more than 33% of peak value
was lost. On average, only ~0.8% of the overall wealth in Bitcoin was actively used for transactions
during the declining phase. Eventually, Bitcoin fell ~90% from its peak level.
However, during the recent rally in prices, TV multiples have been in the range of 40x-80x, averaging
~62x in 2017. This means that ~1.6% of the overall wealth in Bitcoin was actively used for transactions.
Therefore, we believe that the recent surge in Bitcoin price is broadly supported by an active
transaction demand, at least for now.

03
TV Multiple Remains Stable Despite Recent Surge in Bitcoin Price
Source: Compiled by UZABASE based on information from blockchain.info
Bitcoin to Peak by Late Next Year
Our technical analysis based on Elliot wave fractals indicates that Bitcoin could peak at ~USD 7,800 by
November 2018, before seeing a ~70% correction.
Elliot Wave Theory: Cycles Multiply as They Come
The Elliot Wave Theory is based on the notion that cycles are repetitive, and short-run cycles are
essentially fractals of long-run cycles. The theory proposes an eight long-run wave cycle, with five short-
run waves (i, ii, iii, iv, and v) forming the long-run wave (1). As per the fractal relationship, a long-run
wave is a multiple of its corresponding short-run wave. For example, short-run wave (i) is a multiple of
the long-run wave (1), and short run wave (ii) is a multiple of the long-run wave (2), and so on.
0
50
100
150
200
250
300
350
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
Times
USD/BTC
USD/BTC (LHS) TV Multiple - 15 Day Moving Average (RHS)

04
In June 2011, Bitcoin peaked for the first time, reaching USD 32.0, up ~400x from January 2010 when
it first started gathering momentum. We identify this period, from January 2010 to June 2011, as the
first of our short-run impulse waves (wave i). This was followed by a correctional wave (wave ii), which
saw Bitcoin’s value fall dramatically to USD 2.0 by October 2011, a ~90% decrease from its peak value.
Bitcoin peaked again at USD 238.0 in April 2013, after a steady ~500-day rally (wave iii), only to fall
~70% to USD 68.0 by July 2013 (wave iv). Bitcoin rose once more to USD 1,120 in November 2013
(wave v), completing the first wave of the first long-run Bitcoin cycle (wave 1).
Long-Run Wave (1): Breakdown
Long-Run Cycle Short-Run
Cycle
Value
(USD/BTC)
Value
Multiple1
Time (Days) Time Multiple2 Month of
Completion
Wave 1 Wave i 32 N/A 500 N/A Jun 2011
Wave ii 2 0.1x 150 0.3 Oct 2011
Wave iii 238 7.0x 500 1.0 Apr 2013
Wave iv 68 0.3x 100 0.2 Jul 2013
Wave v 1,120 35.0x 150 0.3 Nov 2013
Impulse waves are highlighted in green and correction waves are highlighted in red
1Value multiple for impulse waves = value of the wave divided by value of wave (i), rounded off to the nearest whole number
1Value multiple for correction waves = 1 - (value of the wave divided by value of the preceding wave), rounded off to the nearest 0.1
2Time multiple = time taken for the wave divided by time taken for wave (i), rounded off to the nearest 50 days
Wave (i)
USD 32
Wave (ii)
USD 2
Wave (iii)
USD 238
Wave (iv)
USD 68
Wave (v)
USD 1120
0
20
40
60
80
100
120
140
0
200
400
600
800
1,000
1,200
Times
USD/BTC
USD/BTC TV Multiple - 15 Day Moving Average

05
Following the peak, Bitcoin value fell ~84% to USD 177.0 in January 2015 (wave 2). This was broadly in
line with the fractal estimate of USD 112.0, a ~90% decline. Assuming the fractal relationship holds,
Bitcoin could reach USD 7,840 by November 2018 (wave 3), before seeing a ~70% correction the
following year (wave 4). Our wave 5 estimate puts Bitcoin closer to USD 40,000; however, we believe
this figure is somewhat optimistic. An important point to note is that our analysis is based only on a
single short-run wave, rather than on average fractal multiples of several short-run waves. Using a
longer time period and multiple short-run waves should make the analysis more representative.
Long-Run Cycle: Forecast
Long-Run Cycle Value Multiple Projected Value1
(USD/BTC)
Time Multiple Projected Time2
(Days)
Month of
Completion
Wave 1 N/A 1,120 N/A 1,400 Nov 2013
Wave 2 0.1x 112 0.3 420 Jan 2015
Wave 3 7.0x 7,840 1.0 1,400 Nov 2018
Wave 4 0.3x 2,352 0.2 280 Aug 2019
Wave 5 35.0x 39,199 0.3 420 Oct 2020
Impulse waves are highlighted in green and correction waves are highlighted in red. Over optimistic estimates are highlighted in grey
1Projected value = value of the wave (1) multiplied by value multiple of the respective short-run wave
2Projected time = time taken for wave (1) multiplied by time multiple of the respective short-run wave
Wave (2)
USD 112
Wave (3)
USD 7,840
Wave (4)
USD 2,352
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Jan2010
Jun2010
Nov2010
Apr2011
Sep2011
Feb2012
Jul2012
Dec2012
May2013
Oct2013
Mar2014
Aug2014
Jan2015
Jun2015
Nov2015
Apr2016
Sep2016
Feb2017
Jul2017
Dec2017
May2018
Oct2018
Mar2019
Aug2019
USD/BTC
Actual Forecast

06
The recent Bitcoin rally beats our mid-wave price consensus. We believe this is due to overexcitement
about recent gains and SegWit adaptation (an upgrade to the Bitcoin network to fix transaction speeds
by stripping out transaction data) in early August 2017, boosting confidence in Bitcoin, and is likely to
correct towards the original trajectory.
Sluggish Adaptation Inhibits Bitcoin’s Long-Run Potential
After nearly eight years in circulation, there are less than 15 million Bitcoin users. While perfect
comparisons are not possible in this context, compared with other digital adaptations in the new
millennium, Bitcoin has made slow progress. In its first eight years, Facebook reached one billion active
users, and Apple iPhone sold over 700 million units. However, it is unrealistic to expect a
cryptocurrency to grow on the same trajectory as social media or smartphones. PayPal – an online
payment system that serves as an alternative to traditional money – is perhaps a better comparable.
That said, even PayPal reached nearly 57 million active users in its first eight years up to 2007, when
the number of internet users worldwide was just over one billion, compared with nearly four billion
today.
One of the main arguments for low Bitcoin adaptation has been its low acceptance. Only a few retailers
accept Bitcoin as a payment for goods and services, including just a handful of top retailers such as
Dell, Microsoft, and Overstock, who moreover do so on limited items. This does not necessarily mean
that Bitcoin is worthless as exchange, given that it led gift card providers such as Gyft and eGifter to
provide the option of purchasing gift cards of all major retailers using Bitcoin. More merchants
accepting Bitcoin would go a long way in boosting its adaptation. On the other hand, more consumers
regularly making Bitcoin purchases could eventually push merchants to accept it. This is where we
believe Bitcoin has faltered – in attracting a wider network of users willing to convert their money to
Bitcoin for spending.
In fact, as a medium of exchange, Bitcoin remains in its infancy. Global narrow money supply, i.e. the
total liquid money in the world available for transactions, is ~USD 31 trillion (CIA Factbook, 2016). The
current Bitcoin market capitalisation is USD 71.0 billion, only 0.2% of the global narrow money supply.
Bitcoin is loosely considered an alternative to gold as a store of wealth. Bitcoin is rare and finite in
supply – the very traits that have made gold a successful store of wealth over several centuries.
Additionally, the fact that Bitcoin is independent of any monetary authority makes it an ideal safe
haven, with less vulnerability to economic shocks. Nonetheless, high price volatility in the past have
precluded Bitcoin from winning adequate confidence as a store of wealth. Currently, the Bitcoin
market is worth only 2.0% of the ~USD 3.0 trillion total global investments in gold (World Gold Council,
2017).

07
Bitcoin Mining: “Digging” the Internet
Bitcoin, or for that matter any cryptocurrency, is based on the underlying blockchain technology.
Blockchain is essentially a shared ledger that records how a single Bitcoin changed hands from the time
it is mined. When a user requests for a Bitcoin transaction, it needs to be verified via blockchain. This
verification process requires solving a complex algorithm, and this is done using computerised software.
Miners are essentially solvers of these blockchain algorithms; when a miner cracks the algorithm and
helps the user to carry out the transaction, the miner is awarded a fixed number of Bitcoin (at present,
25 coins per transaction). The number of Bitcoin that can ever be mined is capped at 21 million coins,
and only 16 million of this is currently in circulation. The Bitcoin network is designed in a way that
mining becomes tougher as supply reaches its cap value. At current estimates, the last Bitcoin will be
mined only in 2041, making Bitcoin both rare and finite.
In a highly optimistic world, we can assume Bitcoin attracts 1% of the global narrow money supply and
wealth stored in gold. This would mean that wealth amounting to nearly USD 350 billion would move
into Bitcoin, pushing its market capitalisation closer to USD 400 billion, while a single Bitcoin may be
worth more than USD 20,000. However, critical to reaching such high values is Bitcoin’s widespread
adaptation and acceptance, which, as of now, is considerably low.
Scenario Analysis: Value of a Bitcoin if Wealth Moved from Liquid Money and Gold
Percentage of investments in gold
0.0% 0.1% 0.3% 0.5% 0.8% 1.0% 3.0% 5.0%
Percentageofglobalnarrow
moneysupply(M1)
0.0% *4,283 4,454 4,710 5,137 5,564 5,991 9,408 12,825
0.1% 6,159 6,330 6,586 7,013 7,440 7,868 11,284 14,701
0.3% 8,973 9,144 9,401 9,828 10,255 10,682 14,099 17,515
0.5% 13,664 13,835 14,091 14,518 14,945 15,372 18,789 22,206
0.8% 18,354 18,525 18,781 19,209 19,636 20,063 23,479 26,896
1.0% 23,045 23,216 23,472 23,899 24,326 24,753 28,170 31,587
3.0% 60,568 60,739 60,995 61,422 61,850 62,277 65,693 69,110
5.0% 98,092 98,263 98,519 98,946 99,373 99,800 103,217 106,634
*Current price as at 15 August 2017
Source: Compiled by UZABASE based on information from blockchain.com, CIA World Factbook, and World Gold Council
Altcoins, the Biggest Bitcoin Value Destroyer
Bitcoin came into existence in 2009 as the first of its kind. Several other cryptocurrencies (commonly
known as altcoins) have since emerged, with Ethereum, Ripple, Litecoin, and Bitcoin Cash (the latest
addition) being the most common. As these altcoins gather momentum, Bitcoin has seen a
considerable deterioration in its supremacy.

08
Strong altcoin performance in recent times, with Ethereum gaining ~3,500% and Ripple gaining
~2,400% YTD, is encouraging users to move wealth from Bitcoin to altcoins. In January 2017, Bitcoin
accounted for nearly 90% of the overall cryptocurrency market capitalisation, but by August 2017, this
had fallen to ~50%. However, most of these altcoin gains have been recent. During July 2014-16, in its
first two years of circulation, Ethereum grew only ~38x, compared with Bitcoin’s ~199x growth in its
first two years of circulation (August 2010-12).
Bitcoin Market Share Declines Considerably in 2017
Source: Edited by UZABASE based on coinmarketcap.com
Top Altcoins Post Strong Price Performance YTD
Cryptocurrency
Market Cap
15/08/2017
(USD billion)
% Cryptocurrency Market Cap Exchange Rate (USD/cryptocurrency)
01/01/2017 15/08/2017 01/01/2017 15/08/2017 YTD Growth
Bitcoin 70.7 87.60% 51.16% 998.33 4283.00 329%
Ethereum 28.2 3.96% 19.95% 8.17 289.82 3,447%
Ripple 6.5 1.27% 4.61% 0.01 0.16 2,432%
Bitcoin Cash 4.9 N/A 3.60% N/A 297.86 N/A
IOTA 2.7 N/A 1.98% N/A 0.92 N/A
Litecoin 2.4 1.21% 1.66% 4.51 43.31 860%
NEO 2.4 0.04% 1.66% 0.14 47.49 33,821%
NEM 2.3 0.17% 1.53% <0.01 0.25 7,167%
Dash 1.5 0.42% 1.07% 11.23 203.52 1,712%
Ethereum Classic 1.3 0.65% 0.94% 1.40 13.69 878%
Source: Compiled by UZABASE based on coinmarketcap.com

09
Bitcoin is also handicapped by technology. With the emergence of new altcoins with better security
and transaction speed, Bitcoin users might shift to these “shinier” coins. An example of this was the
Bitcoin hard fork in early August 2017, where the Bitcoin network split to make way for a new altcoin:
Bitcoin Cash. Bitcoin Cash has the ability to process 8x more transactions per day than Bitcoin. Despite
Bitcoin Cash not gaining its anticipated momentum (it fell ~40% since the fork), ~USD 5 billion in value
moved out from Bitcoin as a result of the fork.
On a separate note, we find it difficult to justify recent growth in cryptocurrency prices outside of
Bitcoin as anything other than pure speculation. All top altcoins are up at least 800% YTD, and initial
coin offerings (ICO) have exceeded USD 1.2 billion YTD, already surpassing what it raised for 2016.
Although it is too early to recognise a crypto-bubble, the signs so far raise some red flags. This could
go either way for Bitcoin. Bitcoin could easily get caught in the “cryptomania” and collapse;
alternatively, altcoin holders might feel encouraged to shift to Bitcoin, considering it a stronger and
stable option for cryptocurrency.

10
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