On August 12, 2013, Rafferty Capital Markets released an initial report on Bitcoins entitled Reserve Currency/Bitcoin and Babel. The thrust of that comment was that despite the numerous problems with Bitcoins, the cryptocurrency continued to grow.

1. Monday, December 02, 2013
Bitcoin Revisited
Still Struggling to Understand
Richard X. Bove
Vice President Equity Research
Financial Sector
bover@raffcap.com
813.388.2900
Price Explosion
On August 12, 2013, Rafferty Capital Markets released an initial report on Bitcoins entitled Reserve Currency/Bitcoin and Babel. The
thrust of that comment was that despite the numerous problems with Bitcoins, the cryptocurrency continued to grow. Therefore, it
was assumed that there were compelling reasons for this currency to exist and that it would continue to grow in usage. At the time
the report was released Bitcoins were reported as selling on the Mt. Gox Exchange at an average weighted price of $106.09 per coin.
On Friday, the reported average weighted price, per coin, on the Mt. Gox exchange was $1,155.30. The price had increased by 989%
in three and one-half months.
11/17/2013
9/17/2013
10/17/2013
8/17/2013
7/17/2013
6/17/2013
5/17/2013
4/17/2013
2/17/2013
3/17/2013
1/17/2013
12/17/2012
11/17/2012
9/17/2012
10/17/2012
8/17/2012
7/17/2012
6/17/2012
5/17/2012
4/17/2012
3/17/2012
2/17/2012
1/17/2012
12/17/2011
11/17/2011
9/17/2011
10/17/2011
8/17/2011
7/17/2011
6/17/2011
5/17/2011
4/17/2011
2/17/2011
3/17/2011
1/17/2011
12/17/2010
11/17/2010
9/17/2010
10/17/2010
8/17/2010
$1,200.00
$1,100.00
$1,000.00
$900.00
$800.00
$700.00
$600.00
$500.00
$400.00
$300.00
$200.00
$100.00
$0.00
7/17/2010
Dollars
Weighted Bitcoin Prices as Reported by
the Mt. Gox Exchange
Reducing the Unknowns
This literal price explosion suggested taking another look at this currency to determine what is driving its success. I still find that
what I do not know or understand about this currency and the cryptocurrency phenomenon far outweighs what I do know.
Therefore this report will segregate the two issues, what I know and what I do not know, in an attempt to provide at least some
information concerning what is happening here.
What I Think I Know
Cryptocurrencies
Cryptography has a number of meanings depending on which dictionary one chooses. Merriam Webster defines it as: “the process
of writing or reading secret messages or codes.” The cryptocurrency glossary written by CoinDesk broadens the definition.
“[Cryptography is] the use of mathematics to create codes and ciphers that can be used to conceal information. It is used as the
basis for mathematical problems to verify and secure Bitcoin transactions.”
In sum, cryptography is used to create crypto currencies. And, as shown on the following page, there are a large number of these
currencies in place; although, only one has developed a universal position – i.e., the Bitcoin. The listing shown here is from
Wikipedia but there are many such listings available.
PLEASE SEE IMPORTANT DISCLOSURE AND ANALYST CERTIFICATION LOCATED IN THE APPENDIX OF THIS REPORT.
Page 1

2. Monday, December 02, 2013
Bitcoin Revisited
Cryptocurrency Market (November 2013)
Cryptocurrency
Bitcoin
Litecoin
Peercoin
Infinitecoin
Namecoin
Novacoin
Primecoin
Feathercoin
WorldCoin
CopperLark
TagCoin
Devcoin
MinCoin
Megacoin
Ixcoin
DigitalCoin
Terracoin
Freicoin
Goldcoin
Anoncoin
BBQcoin
Fastcoin
YACoin
Bytecoin
Franko
Bitbar
Phoenixcoin
Timekoin
Rucoin
Solidcoin
I0coin
Extremecoin
CHNcoin
Betacoin
Royalcoin
wikicoin
Geist Geld
Tenebrix
Fairbrix
Coiledcoin
Liquicoin
Smallchange
MMMcoin
Junkcoin
Weeds (currency)
Code
BTC
LTC
PPC
IFC
NMC
NVC
XPM
FTC
WDC
CLR
TAG
DVC
MNC
MEC
IXC
DGC
TRC
FRC
GLD
ANC
BQC
FST
YAC
BTE
FRK
BTB
PXC
TK
RUC
SC
I0C
EXC
CNC
BET
RYC
WPC
GG
TBX
FBX
CLC
LQC
MMM
JKC
Est.
2009
2011
2012
2013
2011
2013
2013
2013
2013
2013
2013
2011
2013
2013
2011
2013
2012
2012
2013
2013
2012
2013
2013
2013
2013
2013
2010
2011
2011
2011
2013
2013
2013
2004
2011
2011
2011
2012
2012
2013
Founder
Satoshi Nakamoto
Coblee
Sunny King
fisheater
Vinced
Balthazar
Sunny King
Peter Bushnell
Mark Vernon & Tagbond
Unthinkbit
SandyCohen
Nasakioto
baritus
maaku, jtimon
Gldcoin & Akumaburn
Meeh
Cubox
Christopher Tao
pocopoco
bryanmills
PCS Network
KnightMB
CoinHunter
CaptChadd
betacoindev
anonymous
Lolcust
ArtForz, Lolcust
coblee
makomk
Nicksasa
lightenup
Sergei Mavrodi
Active
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
No
No
No
No
No
No
No
No
No
Website
Market Cap
http://bitcoin.org
$9,300,000,000
http://litecoin.org
$1,000,000,000
http://peercoin.net
$43,300,000
http://infinitecoin.org
$6,600,000
http://dot-bit.org
$4,700,000
http://novacoin.org
$2,500,000
http://primecoin.info
$2,200,000
http://feathercoin.com
$2,000,000
http://worldcoinfoundation.org
$1,500,000
http://copperlark.com
$710,000
http://tagcoin.org
$450,000
http://devcoin.org
$450,000
http://min-coin.org
$350,000
http://megacoin.co.nz
$310,000
http://ixcoin.org
$273,000
http://digitalcoin.co
$230,000
http://terracoin.org
$220,000
http://freico.in
$190,000
http://gldcoin.com
$150,000
http://anoncoin.net
$140,000
http://bbqcoinfoundation.org
$53,000
http://fastcoin.ca
$32,000
http://yacoin.org
$25,000
http://bytecoin.biz
$12,300
http://frankos.org
$10,000
http://bitbar.biz
$8,700
http://phoenixcoin.org
$5,000
http://timekoin.org
N/A
http://rucoin.org
N/A
N/A
N/A
http://extremecoin.org
N/A
http://chncoin.org
N/A
http://betacoin.org
N/A
http://royalcoin.net
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
junkcoin.org
$3,000
N/A
Comments
Decentralized ledger currency;SHA-256 proof-of-work
Scrypt proof-of-work
SHA-256 proof-of-work/proof-of-stake
Scrypt proof-of-work; 30 second goal
SHA-256 proof-of-work; decentralized DNS
Scrypt proof-of-work/proof-of-stake
Scientific use proof-of-work
Scrypt proof-of-work
Scrypt proof-of-work; target 30 seconds
SHA-3 (512 bit keccak) proof-of-work
Scrypt proof-of-work/proof-of-stake; 4-minute blocks
80% developers; 10% to administrators; 10% miners
Scrypt based
Target 20 seconds
SHA-256 proof-of-work
Uses demurrage (5% per year); 80% to Freicoin Foundation
Scrypt proof-of-work
Scrypt proof-of-work; Users anonymous
Scrypt based
Scrypt proof-of-work
Scrypt chcha proof-of-work;proof-of-stake
Copy of Bitcoin
Scrypt proof-of-work
Novacoin scarce clone
Scrypt proof-of-work
Temporal based, pooled currency production
Russian
10Coin clone
Scrypt proof-of-work
Goal 32 million units; then 0.39% growth
Scrypt based; Canadian
Proo-of-concept
Scrypt proof-of-work
Tenebrix clone
Proof-of-concept coin
Proof-of-concept coin
Proof-of-concept project
10T coins premined
Offline
Proof-of-
These currencies can be mined directly for those with a knowledge of programming and access to computers with enormous
capacity. However, the currencies are also traded through exchanges literally in every region of the world and in every major fiat
currency. Buying them in the open market is not terribly difficult. Note the listing of exchanges on the next page derived from
Bitcoin Charts.
PLEASE SEE IMPORTANT DISCLOSURE AND ANALYST CERTIFICATION LOCATED IN THE APPENDIX OF THIS REPORT.
Page 2

3. Monday, December 02, 2013
Bitcoin Revisited
Active Markets
ARS - Argentina: Pesos
localbtcARS (LocalBitcoins)
AUD - Australia: Dollars
btcmarketsAUD (btcmarkets)
localbtcAUD (LocalBitcoins)
mtgoxAUD (Mt. Gox)
weexAUD (WeExchange)
By Country
Inactive Markets
AUD - Australia: Dollars
bitmarketAUD (BitMarket.eu)
wbxAUD (World Bitcoin Exchange)
Active Markets
GBP - United Kingdoan: Pounds
intrsngGBP (Intersango)
localbtcGBP (LocalBitcoins)
mtgoxGBP (Mt. Gox)
By Country
Inactive Markets
GBP - United Kingdoan: Pounds
bitmarketGBP (BitMarket.eu)
HKD - Hong Kong: Dollars
btchkexHKD (Bitcoin HK Exchange)
ILS - Isreal: New Shekels
bit2cILS (Bit2C)
BRL - Brazil: Reais
localbtcBRL (LocalBitcoins)
mrcdBRL (Mercado Bitcoin)
HKD - Hong Kong: Dollars
anxhkHKD (Asia Nexgen)
localbtcHKD (LocalBitcoins)
mtgoxHKD (Mt. Gox)
ILS - Isreal: New Shekels
localbtcILS (LocalBitcoins)
CAD - Canada: Dollar
CAD - Canada: Dollar
localbtcCAD (LocalBitcoins)
lybitCAD (LibertyBit)
mtgoxCAD (Mt. Gox)
virtexCAD (Canadian Virtual Exchange)
weexCAD (WeExchange)
INR - India: Rupees
localbtcINR (LocalBitcoins)
CHF - Switzerland: Swiss Franc
localbtcCHF (LocalBitcoins)
mtgoxCHF (Mt. Gox)
MXN - Mexico: Pesos
localbtcMXN (LocalBitcoins)
CNY - China: Yuan, Renminbi
anxhkCNY (Asia Nexgen)
btcnCNY (BTC China)
mtgoxCNY (Mt. Gox)
CNY - China: Yuan, Renminbi
rmbtbCNY (RMBTB)
CZK - Czech Republic: Koruna
bitcashCZK (Bitcash.cz)
localbtcCZK (LocalBitcoins)
DKK - Denmark: Kroner
localbtcDKK (LocalBitcoins)
mtgoxDKK (Mt. Gox)
Eur - European Union: Euro
Eur - European Union: Euro
bitcurexEUR (Bitcurex)
bitmarketEUR (BitMarket.eu)
btcdeEUR (bitcoin.de)
rippleEUR (Ripple)
btceEUR (btc·e)
crytrEUR (Crypto-Trade)
intrsngEUR (Intersango)
justEUR (Justcoin)
localbtcEUR (LocalBitcoins)
mtgoxEUR (Mt. Gox)
rockEUR (The Rock Trading Company)
vcxEUR (Vircurex)
Active Markets
SEK - Sweden: Kronor
fybseSEK (FYB-SE)
kptnSEK (Kapiton)
localbtcSEK (LocalBitcoins)
mtgoxSEK (Mt. Gox)
By Country
Inactive Markets
By Cryptocurrency
Inactive Markets
XRP - Ripple
justXRP (Justcoin)
rippleXRP (Ripple)
SGD - Singapore: Dollars
fybsgSGD (FYB-SG)
localbtcSGD (LocalBitcoins)
mtgoxSGD (Mt. Gox)
SLL - Sierra Leone: Leonean
virwoxSLL (VirWox)
Active Markets
LTC - Litecoin
bitmeLTC (bitme)
justLTC (Justcoin)
SLL - Sierra Leone: Leonean
rockSLL (The Rock Trading Company)
THB - Thailand: Baht
localbtcTHB (LocalBitcoins)
mtgoxTHB (Mt. Gox)
JPY - Japan: Yen
mtgoxJPY (Mt. Gox)
NOK - Norwegian: Krone
justNOK (Justcoin)
localbtcNOK (LocalBitcoins)
NZD - New Zealand: Dollars
bitnzNZD (bitNZ)
localbtcNZD (LocalBitcoins)
mtgoxNZD (Mt. Gox)
PLN - Poland: Zloty
bidxtrmPLN (bid extreme)
bitcurexPLN (Bitcurex)
localbtcPLN (LocalBitcoins)
mtgoxPLN (Mt. Gox)
PLN - Poland: Zloty
bitmarketPLN (BitMarket.eu)
intrsngPLN (Intersango)
RUN - Russia: Rubles
btceRUR (btc·e)
localbtcRUB (LocalBitcoins)
mtgoxRUB (Mt. Gox)
USD - United States: Dollars
anxhkUSD (Asia Nexgen)
bitkonanUSD (bitKonan)
bitstampUSD (BitStamp)
btceUSD (btc·e)
cbxUSD (Camp BX)
crytrUSD (Crypto-Trade)
icbitUSD (ICBIT Stock Exchange)
justUSD (Justcoin)
localbtcUSD (LocalBitcoins)
mtgoxUSD (Mt. Gox)
rippleUSD (Ripple)
rockUSD (The Rock Trading Company)
vcxUSD (Vircurex)
weexUSD (WeExchange)
USD - United States: Dollars
bitboxUSD (BitBox)
bitmarketUSD (BitMarket.eu)
intrsngUSD (Intersango)
lybitUSD (LibertyBit)
RUN - Russia: Rubles
bitmarketRUB (BitMarket.eu)
ZAR - South Africa: Rand
bitxZAR (BitX)
localbtcZAR (LocalBitcoins)
PLEASE SEE IMPORTANT DISCLOSURE AND ANALYST CERTIFICATION LOCATED IN THE APPENDIX OF THIS REPORT.
Page 3

4. Monday, December 02, 2013
Bitcoin Revisited
The table below provides some idea of the activity by Exchange based on the trading activity on November 29, 2013.
Market
btcnCNY
mtgoxUSD
btceUSD
bitstamp USD
mtgoxEUR
mtgoxJPY
btcdeEUR
btceEUR
btceRUR
bitcurexPLN
localbtcGBP
virtexCAD
mtgoxGBP
mtgoxAUD
localbtcEUR
mtgoxPLN
mrcdBRL
virwoxSLL
cbxUSD
mtgoxCAD
localbtcUSD
localbtcAUD
anxhkHKD
rip p leXRP
justNOK
rockEUR
fy bseSEK
justEUR
fy bsgSGD
bitcurexEUR
justLTC
localbtcCAD
bitnzNZD
mtgoxSEK
bitxZAR
cry trUSD
btcmarketsAUD
mtgoxCHF
localbtcNZD
mtgoxDKK
localbtcCHF
localbtcHKD
localbtcTHB
kp tnSEK
justUSD
mtgoxHKD
localbtcZAR
mtgoxCNY
justXRP
rip p leUSD
localbtcSGD
mtgoxSGD
localbtcNOK
localbtcARS
localbtcCZK
localbtcSEK
localbtcM XN
bitkonanUSD
localbtcPLN
anxhkUSD
localbtcBRL
intrsngEUR
localbtcINR
mtgoxTHB
localbtcDKK
anxhkCNY
rockUSD
vcxUSD
mtgoxRUB
intrsngGBP
cry trEUR
localbtcRUB
mtgoxNZD
vcxEUR
Last price
7041.12
1149
987.5
1080.95
838
116000
804.01
786.89
34395
3431
779.19
989
704.3059
1276.895
750.96
3463.2591
3000
276680
1025
1220.0911
1187.44
1462.88
8970
38000
6763
754
7400
839.99
1495.95
800
25.5
1281.92
1280
7660
12700
1000
1337
1034.8921
1500
6300
910.19
8916.31
33423.83
6800
1120
9168.9157
10990.08
6818.9424
33800
1100
1508.14
1425.9455
7585.97
10123.05
25315.58
8228.63
16836.34
1200
3473.03
1150
3472.12
591.5
64961.29
36500
6572.52
6747.9879
990
948.88
38244.7763
727
899.99
35192.68
1501.7451
700
Volume (24h)
83,471.93
49,133.34
26,760.27
24,274.03
4,628.26
2,101.20
1,555.43
1,296.15
943.93
925.88
672.4
581.1
518.05
501.19
307.79
284.93
225.01
222.57
193.99
162.11
160.55
140.45
132.61
120.86
81.96
74.44
72.06
61.27
47.94
47.15
42.61
41.05
40.56
37.53
27.96
25.91
23.99
23.95
22.83
20.94
19.65
18.27
17.8
15.75
13.57
12.92
12.13
11.42
10.73
9.35
9.07
8.59
8.56
7.06
6.2
5.18
3.92
3.8
3.5
3.47
3.1
2.52
2.02
2
1
0.94
0.88
0.73
0.39
0.07
0.03
0.03
0.02
0
Bid
7031.78
1149
981.41
1071.52
827
116000
835
776.95
33840
3431
984.33
963
704.31
1254.28
971.21
3463.26
2800
266001
1025.06
1199
4353.36
1653.95
8650
37050
6455
755
7480
797.3
1480
799.3
25.57
1368.59
1280
7499
12111
955
1300
1017.54
1358.87
6158.76
1037.28
8416.81
35611.65
6566.56
980
8701.09
12050.96
6837.75
33550
1100
1378.17
1409.27
6920
10745.01
23707.41
8459.12
15000
1181
3661.33
1108.97
3166.07
550
70421.49
36052.84
6083.66
6811.02
925
852
37200.19
486
575
35618.72
1376.32
576
Ask
7034.89
1149.87
982
1075
838
119000
831
783.32
33840.01
3439
137.4
976
710
1276.92
310.8
3600
3000
276698
1036.99
1234.83
847.42
1152.93
9088
38000
6763
785
7489.96
839.99
1495.95
800
30.68
1064.49
1300
7670.42
12700
1000
1337
1058.48
1299
6300
1008.02
8758.95
30345.39
6800
1120
9051.08
12628.91
7112.71
36800
1144
1344.01
1465.93
6836.16
10700.53
20549.71
7253.99
16514.41
1394.96
3226.51
1180.26
2597.59
591.5
67068.09
37503.03
5888.38
7212.7
1000
859
38696.99
727
779
35019.74
1412.9
700
High
7499
1242
1018.7
1097.49
893
127285.1
1200
804
35000
3550
1068.96
997.9
750
1360
1069.87
3740.15
3600
279894
1049.49
1295.24
2295.3
1499
9450
41450
6779
790
8000
850
1520
800
40.9
1683.47
1348.5
7933.09
16400
1000
1337
1100
1539.83
6646.62
1216.18
8979.29
45886.88
6800
1125
9591.23
17884.94
7550.43
44999
1125
1508.14
1532.97
7585.97
11715.76
27125.28
8264.87
18473.73
1400
4114.66
1200
3504.02
591.6
84030.29
36500
6572.52
6747.99
995
948.88
39676.88
785.86
899.99
35192.68
1501.75
700
Low
6600
1050
927
980
790
109657.97
415
715.35
31234.7
3333.1
597.19
935
644.57
1154.19
540
3315
2750
242005
974.31
1110
717.85
951.78
7850
33333.33
6126
730
6360
704.36
1345
740
5
894.9
1223
7166.3
10001
935
1150
995.07
1209.76
5917.52
900.23
8012.23
31682.89
5805.8
885
8422
10744.99
6740.9
28000
1005
1368.6
1425.95
6368.9
9128.02
16761.86
6260.46
13500.52
1150
3289.25
1012.82
2679.82
508
64961.29
36156.39
6572.52
6399.95
910
900
36658.21
363.4
899.99
35192.68
1417.65
700
PLEASE SEE IMPORTANT DISCLOSURE AND ANALYST CERTIFICATION LOCATED IN THE APPENDIX OF THIS REPORT.
Page 4

5. Monday, December 02, 2013
Bitcoin Revisited
There are a few points to be derived from the two tables above:
•
•
•
•
Crypto currencies are becoming universal; certainly the Bitcoin is.
Bitcoins trade in every currency.
If one multiplies the 200 million coins traded on Friday by the U.S. price on that day, the market turnover was $230 million.
th
If one annualizes the Friday volume, it becomes $50 billion; a big number but less than 1/1,000 of 1% of the world’s fiat
currencies of $56 trillion by my calculation.
So the Bitcoin is growing and it is sizable but it is yet to threaten any aspect of the fiat currencies of the world. Still it does require
investigation given the apparent enthusiasm to own the currency.
Starting Point
Supposedly a gentleman named Satoshi Nakamoto created the Bitcoin in 2009 and then after never have being seen announced his
retirement from the Bitcoin scene in 2011. Whether Mr. Nakamoto ever existed or not his creation the Bitcoin clearly does exist. It
has some of the following characteristics:
Creation
•
Bitcoins are created whenever a computer programmer or other individual, using any machine, solves a mathematical
puzzle or algorithm.
Anyone can try to solve the puzzle on any computer anywhere in the world. The problem however gets more and more
complicated as time passes. For example, it is easy to solve a mathematical query asking for the first prime number. It
st
requires enormous computer power to solve the problem of supplying the 5,001 prime number. The University of
Tennessee already has located the first 5,000.
For those fortunate enough to solve the early algorithms, the reward was 50 Bitcoins. Every 210,000 blocks of issuance (or
every four years if the Chicago Fed’s estimate is correct) the number if Bitcoins provided for solving the increasingly
difficult algorithm is cut in half.
At this rate, the maximum number of Bitcoins that will ultimately be produced will be 21 million (it is thought that 12
million are out today). If George Mason University’s Mercatus Center is correct the last Bitcoin will be produced in 2140.
Each Bitcoin can be broken into 100,000,000 million “satoshis”. So if observers are correct by 2140 there will be 21 million
Bitcoins outstanding or 2.1 quadrillion satoshis.
•
•
•
•
Ownership
•
•
•
•
•
•
Once someone acquires a Bitcoin s/he is actually obtaining an encrypted computer file called a wallet. The file has two
methods of identification to the outside world: a public key and a private key.
The existence of the new Bitcoins is ultimately recorded on the thousands of computers that have been involved in
Bitcoin transactions in the past.
When a Bitcoin is used by a holder to make a purchase or transfer funds, the transaction must be approved by a majority
of the thousands of nodes (computers held by other Bitcoin owners) or the transaction will not go through.
The transaction is recorded but the owner of the Bitcoin associated with the transaction is not; although s/he can be
tracked if a governmental entity is determined to do so.
Users of Bitcoins are able to effect transactions at much lower prices than if they use a credit or debit card, or if they
were using Western Union to move cash from one place to another.
For those who do not wish to make transactions in Bitcoins, but do want to participate in the capital gains being created
by the rise in Bitcoin prices, there are Bitcoin investment trusts.
Multiple Cryptocurrencies
There are a number of reasons as to why there are so many other cryptocurrencies such as Litecoin, the only real competition to
Bitcoin:
•
It may take 10 minutes for a Bitcoin transaction to be approved by the thousands of nodes involved. Therefore, there is a
competition to develop a safe system that is much faster. Digital Coin is promising 20 seconds.
PLEASE SEE IMPORTANT DISCLOSURE AND ANALYST CERTIFICATION LOCATED IN THE APPENDIX OF THIS REPORT.
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6. Monday, December 02, 2013
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•
•
•
•
•
•
Despite the protections that Bitcoin has built into its systems, every element of the system has been successfully attacked
in the past. This includes everything from Exchanges themselves, one at least was driven out of business, to individual
wallets. A variety of proof-of-work and proof-of-stake systems are being experimented with.
If a file or wallet is lost so is the currency associated with that wallet. It is similar to losing a $100 dollar bill. One can never
get the “money” back. Paper wallets are being developed in place of digital only wallets.
There is a desire for more anonymity. Anoncoin believes it is a leader here.
There is an effort to unseat Visa and MasterCard in handling transactions. Visa is believed to handle 200,000 transactions
per minute while Bitcoin is believed to be at 30. There is a big market to capture.
Another real problem is the enormous amount of energy required to run thousands of nodes necessary to validate
transactions. This is driving up the cost of the overall system.
There is a great deal of profit to be obtained if one can actually get a successful cryptocurrency up an in use. Devcoin is
maximizing the developers’ profits at the moment.
Reasons for Use
Initially, it was my belief that there were three core types of users for this product:
•
•
•
Criminals;
Citizens in countries with unstable or potentially unstable fiat currencies; and
First adopters in the technology world.
I would now add three more users:
•
•
•
Individuals and companies seeking to lower the cost of transactions.
Speculators seeking the opportunity to gain an investment profit.
The country of China which may be seeking to gain control of the system to get control of transactions in this new currency.
What I Know I Do Not Know
Technology
I do not understand any of the terminology related to the technology behind the cryptocurrencies such as:
•
•
•
•
•
•
SHA-256 vs. SH-3;
Proof-of-work vs. proof-of-stake vs. proof-of-concept;
Scrypt based vs. non scrypt based or scrypt proof-of-work/proof-of-stake;
Hash marks;
Blocks;
CPU vs. GPU vs. ASIC
And that is just the beginning. In delving into cryptocurrencies there is a good deal of religion – i.e., faith that the systems actually
work. It is unlikely that the average user or investor will ever understand how this system actually does work.
Control
As the number of transactions grows, the need to reduce the number of nodes seems apparent. Holders of Bitcoins cannot be
expected to grow their computer systems to meet the need of validating what may at some point be thousands of transactions per
minute. Once a single entity gains control of 51% of the transaction proofing, it is quite possible that the whole ethos of the Bitcoin
system may collapse because now there will be a central user like a central bank controlling the system.
It does appear that China may have reached this position. If this is true, Bitcoin has already become a Chinese entity.
Pricing
One of the great appeals that founder “Satoshi Nakamoto” outlined for Bitcoins is the low cost of facilitating transactions. If Bitcoins
are trading as investment vehicles at $1,200 per coin, it is questionable if this is truly a low cost transaction vehicle. Moreover, it
would appear that the pricing of the Bitcoin has become unusually erratic. This destroys the effective use of any currency and may
PLEASE SEE IMPORTANT DISCLOSURE AND ANALYST CERTIFICATION LOCATED IN THE APPENDIX OF THIS REPORT.
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7. Monday, December 02, 2013
Bitcoin Revisited
open the way for another non-Chinese controlled cryptocurrency to rise in value. This creates more volatility and less ability for
holders to use any cryptocurrency.
Conclusion
The concept of creating a new currency that is limited in size and not controlled by any government has great appeal. Whether this
can truly be done is open to question. However, maintaining some understanding of the developments in this sector is important
particularly for financial analysts where currency is the raw material of the business.
PLEASE SEE IMPORTANT DISCLOSURE AND ANALYST CERTIFICATION LOCATED IN THE APPENDIX OF THIS REPORT.
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8. Monday, December 02, 2013
Bitcoin Revisited
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.
Regulatory Disclosures
Analyst Stock Ratings Definitions
Rafferty Capital Markets’ (“RCM”) ratings, effective January 2, 2013, are defined as follows:
Buy – A stock that at initiation displays projected Price-to-Book ratio less than 100% and projected Earnings Direction greater than zero.
The rating may be maintained following initiation as long as it is deemed appropriate, notwithstanding price fluctuations that would
cause the rating to fall outside of the above parameters.
Hold – A stock that at initiation displays projected Price-to-Book ratio less than 100% and projected Earnings Direction less than zero;
projected Price-to-Book ratio between 100% and 200% and projected Earnings direction less than 10%; or projected Price-to-Book ratio
greater than 200% and projected Earnings Direction greater than 10%.
Sell – A stock that at initiation displays Projected Price-to-Book ratio greater than 100% and projected Earnings Direction less than zero.
The rating may be maintained following initiation as long as it is deemed appropriate, notwithstanding price fluctuations that would
cause the rating to fall outside of the above parameters.
Distribution of Ratings
RCM must disclose in each research report the percentage of all securities rated by the member to which the member would assign a
"buy", "neutral" or "sell" rating. The said ratings are updated on a quarterly basis. Below is the distribution of RCM’s research
recommendations:
Buy: 53.1%
Hold: 43.8%
Sell: 3.1%
There are 32 stocks under coverage
Market Ratings
Negative – A 10% expected decline in S & P 500.
Neutral – The S & P is expected to trade within 10% bounds up or down.
Positive – A 10% expected rise in the S & P 500.
Valuation and Risks
The primary risks to achieving our target price include general market fluctuations, unexpected shifts in economic activities, and/or
unexpected reversals in company fortunes.
Additional Information is Available upon Request to Barbara Martens at Rafferty Capital Markets, LLC, 1010 Franklin
Avenue, Garden City, NY 11530 or 516.535.3800
PLEASE SEE IMPORTANT DISCLOSURE AND ANALYST CERTIFICATION LOCATED IN THE APPENDIX OF THIS REPORT.
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9. Monday, December 02, 2013
Bitcoin Revisited
Other Disclosures
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