Daily Archives: July 8, 2017

Fundstrat's Tom Lee on Friday became the first major Wall Street strategist to formally lay out his views on bitcoin.

The digital currency could be worth as much as $55,000 by 2022, Lee said in a report titled "A framework for valuing bitcoin as a substitute for gold."

"We believe one of the drivers [of bitcoin] is crypto-currencies are cannibalizing demand for gold," Lee said in the report. "Based on this premise, we take a stab at establishing valuation framework for bitcoin. Based on our model, we estimate that bitcoin's value per unit could be $20,000 to $55,000 by 2022."

Bitcoin traded near $2,540 on Friday. The digital currency has more than doubled in value for the year, and high interest prompted a Goldman Sachs technical analyst, a team of Morgan Stanley analysts and Citi researchers to issue reports on bitcoin or the blockchain technology behind it in the last few months.

However, Lee is the first widely followed market strategist to issue a report dedicated to predicting bitcoin's price. Lee also happens to be the most bearish strategist on U.S. stocks currently. He was JPMorgan Chase's chief equity strategist from 2007 to 2014 before co-founding Fundstrat Global Advisors, where he is managing partner and head of research.

The strategist's case for bitcoin is a basic supply-and-demand story, similar to the argument other proponents of bitcoin use when playing up its future as "digital gold."

Gold's market value of $7.5 trillion is exponentially greater than bitcoin's $41 billion. But Lee pointed out the precious metal's supply "is surging as mining soars to all-time highs," while the number of available bitcoins is rapidly approaching its inherent 21 million-coin limit.

"A simulation shows that this will slow even further to less than 1.5% growth by ~2020, meaning bitcoin supply will grow even slower than gold," Lee said.

Bitcoin is also theoretically a better way to store value, proponents contend, since governments can easily decrease a currency's worth by printing more of it.

The constraints on bitcoin's supply and the potential worth of the digital currency mean there will be high demand for a limited product, driving up the price. Bitcoin has already surged from below $1,000 on Dec. 31 to briefly top $3,000 in June.

Lee also expects investors could look at bitcoin as a substitute for gold, and his model shows the digital currency could be valued at $20,300 by 2022. Adding more variables to the model puts the value of bitcoin in five years in a potential range of $12,000 to $55,000.

"In other words, substantial upside exists in owning cryptocurrencies here," Lee said.

He also expects central banks will consider buying the digital currencies if the total market value tops $500 billion. Including bitcoin and its rival ethereum, the value of all cryptocurrencies hovers around $100 billion, according to CoinMarketCap.

"In our view, this is a game changer, enhancing the legitimacy of the currency and likely accelerating the substitution for gold (by investors)," he said.

Lee noted a Bloomberg news report that central banks have looked into the possibility of owning digital currencies.

In March, Federal Reserve Governor Jerome Powell cautioned in a speech about the potential challenges for a central bank to issue a digital currency, including privacy.

To be sure, digital currencies such as bitcoin often swing wildly and operate in unregulated markets. While the lack of regulation is what has attracted many buyers, many consider bitcoin the "Wild West." Three years ago, Mt.Gox, the largest bitcoin exchange then, filed for bankruptcy and said it lost 750,000 of its users bitcoins and 100,000 of the exchange's own.

The future of bitcoin is also in question. This summer, the digital currency could split if developers don't agree on the same system to upgrade bitcoin.

Lee acknowledged bitcoin's volatility in his report, noting that annualized bitcoin volatility is 75 percent, "substantially higher than gold's 10%. But as noted, gold's volatility approached 90% from 1971 to 1980 as the U.S. abandoned the gold standard hence, we expect this to improve over time."

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Top Wall Street strategist sees bitcoin 'cannibalizing' gold, worth as much as $55000 - CNBC

"Bitcoin does not have the fundamental attributes needed to be a currency as it is a string of code generated by complex algorithms...But I do not deny that virtual currencies have technical value and are a type of asset," he said.

His comments come after the Chinese central bank increased scrutiny of the country's bitcoin exchanges earlier this year, a move that prompted the companies to stop margin lending, introduced trading fees and issue rules to rein in users.

Many governments around the world are still mulling how to regulate and classify bitcoin, whose value surged in June to hit a record just shy of $3,000. China has classified it as a "virtual good".

Squaring in on bitcoin, Sheng said expectations that bitcoin supply would be capped in the year 2140 would make it difficult for it to become a medium of exchange that could meet modern economic development needs as money supply should be related to economic needs.

He also said that Chinese monetary authorities should study issuing a central bank virtual currency that it could regulate and run properly.

Read this article:
Bitcoin can be an asset but not a currency, says China central bank adviser - CNBC

China's central bank adviser considers Bitcoin to be a financial asset and not money, calls for the government to create its own digital currency. Read more...

The widespread adoption of Bitcoin among the masses has made it part of the global economic system. While the number of Bitcoin users continue to grow, there is still a lack of clarity about the cryptocurrencys status in the financial system. Countries like Japan have already assigned a legal position to Bitcoin as a currency, and there are others that are mulling regulations to bring the digital currency within the purview of the countrys legal structure.

By design Bitcoin shares similarities with different financial instruments. The cryptocurrency can be classified as both money and asset. However, many governments fear that by calling the virtual currency money, they will be undermining the countrys monetary system. At the same time, they cant simply ignore Bitcoin either, thereby forcing them to call it an asset instead of money.

A recent comment by one of the advisers at the Peoples Bank of China perfectly matches the observation. In an interview Sheng Songcheng mentioned,

Bitcoin does not have the strong fundamental attributes needed to be a currency as it is a string of code generated by complex algorithms But I do not deny that virtual currencies have technical value and are a type of asset.

Sheng went on to further explain the reason behind it by stating that the finite supply of Bitcoin, set to be fulfilled by the year 2140 will create a mismatch between the economic needs of the future and the actual capabilities of the cryptocurrency.

However, Sheng accepts the superiority of the cryptocurrencies over traditional currencies, thanks to their qualities. He believes that a cryptocurrency with more government control over it might be the next step towards creating the future monetary system that is more consistent with the evolving needs.

Currently, Bitcoin holds the status of a virtual good, similar to game tokens, downloadable content, etc. However, new regulations in the near future might soon change it.

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Bitcoin Can't Be Considered as Money, Says PBOC Adviser - newsBTC