BofAML Sees Bitcoin Fair Value At $1300

Tyler Durden's picture

Bitcoin could become a major means of payment for e-commerce and may emerge as a serious competitor to traditional money-transfer providers, BofAML notes in a report today, adding that as a medium of exchange, Bitcoin has clear potential for growth, in our view. Despite Greenspan's inability to find "value", BofAML prefers not to call the crypto currency a bubble, and assigns a maximum fair-value of $1,300, but does warn that the 100 fold increase in Bitcoin prices this year is at risk of running ahead of its fundamentals.

Via BofAML's David Woo,

How to assess Bitcoin’s fair value?

The value of Bitcoin has risen 100 times over the past year, raising the question of whether it is a bubble. To answer this question, we need to be able to assess its intrinsic value. We don’t offer a forecast for Bitcoin, but below are our preliminary thoughts on how to approach the fair value question. Bitcoin’s is both a medium of exchange as well as a store of value. In our view, it is easier to think about fair value by treating these two purposes separately.

Value as a medium of exchange

As we have argued already, Bitcoin has some attractive attributes as a medium of exchange, especially for e-commerce. What could be the fair value of Bitcoin if it were to become a dominant medium of exchange for e-commerce that accounts for, let’s say, 10% of all the payments for B2C transactions? Let’s do the following exercise:

  • US personal consumption expenditures totaled $11trn in 2012
  • Household checking deposits and cash totaled $0.7trn in 2012
  • Dividing the former by the latter, we get 0.07 (which we will refer to as velocity from now on)
  • Velocity has been rising since 2008, likely reflecting cash hoarding behavior that is likely temporary. To smooth it, we take an average of the velocity of the past ten years to arrive at 0.04 -- we assume US households are holding 4 cents in their cash/near cash balances for every $1 spent over the course of the year
  • In 2012, total B2C e-commerce sales in the US totaled $224bn
  • If we were to assume that the velocity for on-line sales is the same as the velocity for all US household spending, then households would want to setaside $10bn for their on-line shopping
  • Given the assumption that Bitcoin will grow to account for the payment of 10% of all on-line shopping, this would suggest that US households would want to have a balance of $1bn worth of Bitcoins
  • What about for the whole world? US GDP is about 20% of World GDP. If we were to assume the same degrees of penetration of e-commerce for the rest of the world and that spending by households outside the US has the same velocity, we get to $5bn worth of Bitcoins for the total desired cash/noncash balance of global on-line shopping.

The above is a very rough calculation and we have made a lot of big assumptions. Moreover, B2C is only one dimension of total e-commerce and we cannot rule out that Bitcoin can become a dominant medium of exchange for B2B transactions. Nevertheless, the exercise shows that if Bitcoins remains only as a medium of exchange, there appears to be a clear upside limit for its value.

It has been argued that Bitcoin may become a popular means of payment for illicit trade. We don’t have an informed view on this subject but the fact that all Bitcoin transactions are publicly available (and therefore can be tracked in theory by law enforcement agencies) and that every Bitcoin is defined by its unique transaction history (making it difficult for criminals to cover their tracks6) may limit the growth of its use in the black market/underworld.

In addition to its role as a mean for payment for on-line commerce, Bitcoin can be used for transfer of money (e.g. immigrant worker in the US sending remittances back home). This can be done very cheaply and fast (online settlement in under 10min if the sender is trustworthy like family member or 50min settlement for strangers). How do we assign a maximum fair value to this role of Bitcoin?

Western Union, MoneyGram, and Euronet are the three top players in the money transfer industry (with about 20% of the total market share). Let’s assume that Bitcoin becomes one of the top three players in this industry. What does that mean for Bitcoin valuation? Given Bitcoin’s supply is fixed, when one buys a Bitcoin, one is acquiring not only a medium of exchange but also an investment in the enterprise value of Bitcoin. From this point of view, Bitcoin's market capitalization could be viewed, with a little leap of faith, as its enterprise value. With the average market capitalization of Western Union, MoneyGram and Euronet at about $4.5bn, we will add this number to the maximum market capitalization of Bitcoin’s role as a medium of exchange.

Bottom-line: maximum market capitalization for Bitcoin’s as a medium of exchange = $5bn (for B2C e-commerce) + 4.5bn (means for payments) = $9.5bn

Interestingly, our $9.5bn estimate is below the current actual market capitalization of Bitcoin at $13bn. This suggests that the current market value of Bitcoin assumes either that Bitcoin will account more than 10% of market share for ecommerce, will have more than 10% market share of the money transfer industry (Chart 7)., or will have significant value as a store of value.

Value as a store of value

The value of Bitcoin has been recently outstripping the growth of the nonspeculative transactions using it (Chart 8). This fact alone would suggest that the price appreciation has been more about Bitcoin as a store of value or investment than as a medium of exchange.

How can we assign a value to Bitcoin’s role as a store of value? This is a very difficult question. Given Bitcoin does not pay any interest and that there are no investment instruments (equities or bonds) that are denominated in Bitcoin, the value of its store of value role appears limited. From this point of view, as a store value, its closest cousins are probably precious metals or cash (Table 1), in our view.

Bitcoins and gold have three important common attributes: neither pays any interest, the supply of both is limited, and both are more difficult to trace than most financial assets (except cash). The current outstanding value of gold bar/coins/ETFs is about $1.3trn. Can Bitcoin reach the same market capitalization as gold? We are doubtful.

First of all, Bitcoins are much more volatile than gold, which makes Bitcoins a riskier asset to own. Over the past two years, the volatility of Bitcoin has been on average five times higher than that of gold (Chart 9). All else being equal, this means Bitcoins are five times riskier than gold. Unless Bitcoin volatility declines sharply or gold prices increases sharply, it is reasonable to think that it will be difficult for the market capitalization of Bitcoins to go above $300bn.

Furthermore, the reputation of gold as a unique and safe store of value has been growing for the past ten thousand years. It will take some time for Bitcoins to acquire that reputation. We don’t know how to quantify the value of gold’s reputation, but this reputation is probably the main reason that its value is 60 times that of silver. If we were to assume that Bitcoin were to eventually acquire the reputation of silver (which is an extremely ambitious assumption), this suggests that Bitcoin market capitalization for its role as a store of value could reach $5bn. By the way, $5bn is not too far from the current value of total US silver eagles minted (since 1986), in our view probably the most relevant comparison to Bitcoin, that is around $8bn (12k tons).

Bottom-line: maximum market capitalization for Bitcoin’s as a store of value = $5bn

Bitcoin’s has one advantage over gold in that it is easier to transfer. That said, we don’t think this is a big advantage given the advent of gold ETFs and the ability to move such ETFs in-between accounts. We would not assign any additional value for Bitcoin in this respect.

Clearly, market perception of the Bitcoin’s fair value also depends importantly on the outlook for unconventional monetary policy. If Federal Reserve’s quantitative easing does not end over the next year, as is generally expected, the demand for safe haven assets (like gold and Bitcoins) would increase supporting their value. We expect Fed tapering to begin in Q1 next year and the USD to slowly regain its credibility as the world’s reserve currency, especially as the US continues to reduce its fiscal deficit that will likely fall below 4% of GDP next year. Bitcoin as a store of value likely will struggle to gain traction if our bullish USD view for 2014 turns out to be correct.

Final tally:

When we add our estimated maximum market capitalization for Bitcoins for its role as a medium exchange with that for its role as a store of value, we get a number that is somewhere around $15bn. Although this does not mean that Bitcoin price cannot rise further (as an object of speculation), we think the recent rise of Bitcoin price could soon run ahead of its fundamentals. Our current view implies a:

Maximum market capitalization for Bitcoin = $15bn

Maximum fair value of Bitcoin = 1300 USD


There is much speculation that Bitcoin may help avoid high taxes, capital controls, and confiscation. The correlation between CNY's share of volume of all Bitcoin exchanges and price of Bitcoin is rising. That said, the fact that all Bitcoin transactions are publically available and that every Bitcoin has a unique transaction history that cannot be altered may ultimately limit its use in the black market/underworld.

Bitcoin’s role as a store of value can compromise its viability as a medium of exchange. Its high volatility, a result of speculative activities, is hindering its general acceptance as a means of payments for on-line commerce.

Is Bitcoin a bubble? Assuming Bitcoin becomes (1) a major player in both ecommerce and money transfer and (2) a significant store of value with a reputation close to silver, our fair value analysis implies a maximum market capitalization of Bitcoin of $15bn (1BTC = 1300 USD). This suggests that the 100 fold increase in Bitcoin prices this year is at risk of running ahead of its fundamentals.

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Jumbotron's picture

LOL !!!!

Criminals setting "fair" value to the Magic the Gathering card version of currency.  That's fucking rich.

dryam's picture

An endorsement from a bank......sure, bitcoin is on the up and up.

tsx500's picture

no fonestar appearance yet ... i'm getting a little worried ..... :>(

Pladizow's picture

BAC on BC - Something Smells Fishy!

Skateboarder's picture

Gotta mine 'em all! Gotta mine 'em all! Bitcoinmon.

nope-1004's picture

Banksters embracing the anti-establishment currency?  LMFAO!!

I guess if the University of Cyprus accepting Bitcoin to pay their profs (government employees) wasn't the first clue, this might be the second clue.

Time to wake up about bitcoin and its merit.  It may live on, but it's not out of gov't grasp.


Stackers's picture

The current outstanding value of gold bar/coins/ETFs is about $1.3trn. Can Bitcoin reach the same market capitalization as gold? We are doubtful.

I'm a hardcore stacker of metals, and I do not doubt that BTC market will eventually equal that of gold and it's related paper products.

That equals $1million BTC - Give it some time......



Flame away

fonestar's picture

$1300 fair value my ass.  Bitcoin is going to seven figures and beyond.

prains's picture STILL can't see where this is going hey dongstar, you're being led out to sea my friend and there's going to be no paddlin back 

fonestar's picture

You better believe I see where this is going.  I am a visionary!

Fully 'tarded.

jomama's picture

came to this thread to find fonestar trollin'.

was not disappointed.

dryam's picture


"$1300 fair value my ass.  Bitcoin is going to seven figures and beyond."

No, that does not sound like bubble mania at all.

fonestar's picture

A bubble compared to what exactly?  The other crypto-currencies?

No, I don't think seven figure BTC would be a bubble by any definition.

fonestar's picture

meh, I don't care about "dollar" values too much.

foodisgood's picture


Even Ron Paul can put it in his pocket

The Alarmist's picture

So what they are saying is that you will soon be able to buy BoA with a single Bitcoin?

MillionDollarBogus_'s picture

fonestar has me convinced.

Am putting all my eggs in the bitcoin basket..

Will put in the order for a new Fedship this weekend.


MillionDollarBogus_'s picture

On 2nd thought....

"This vendor found a bug in the system and stole 5,400 BTC [about $5 million]—your money, our provisions, all was stolen," reads the message posted on the now-shuttered site's homepage. "We were trying to resolve this problem, but we were not successful."

That should help raise the price of the legit bitcoin.........go, baby, the moon...!!!!!!!!!!

The Alarmist's picture

Easy come, easy go ... could just as easily have been a hedger's account at MF Global.

TruthHammer's picture

well, moo-nstar wouldnt reply in the other threads, so i'll repeat myself one more time.

other than that, merry christmas to all, even those shilling :)




while shilling for Bitcoin takes a lot of time, I can't help but ask why you continue to apparently believe the fallacy that

"crypto-currency" or "virtual currency"  EQUALS Bitcoin.

Bitcoin is AN example of those things, they are not it.  You straw man the idea that virtual/crypto-currencies are here to stay, which is true, and then fallaciously follow up with Bitcoin is here to stay.


The single claim I have seen you or anyone make as to why this should be the case, is "first adopter" status, and that is a VERY weak reason to not turn paper profits into real ones by cashing out.  If the powers that be, (as you supposedly think you are opposing with BTC), choose to create an officially sanctioned, properly supported, fully-convertible "crypto-currency" that is equivalent to legal tender, their USCoin would wipe BTC out in a day.

Don't fool yourself to think privacy, anonymity, fighting fiat, or any other nonsesnse would stop it.  What people are chasing with BTC is easy money, that's why shoeshine boys are telling me about how their buddy set up a mining rig, and why LTC et al see growth as people chase the next e-Coin with a lower entry margin.

BTC is 50% penny stock, and 50% commodity (virtual commodity) and 0% currency.  It can and will be vaporized, either by a far more convertible official alternative, or by advancing technology leading to its undoing.  It will never reach "a million dollars" and it is completely driven by speculators and controlled by the 20%ers.

Feel free to shill some FUD in response, I'm all ears, and you've just been....refer to ID-name ;)

thisandthat's picture

Add that to that chinese exchange that vanished with millions from its customers. And counting...

fonestar's picture

Even Gartman the perennial flip-flopper sees that Bitcoin is a "danger".  More than I can say for most of you.

prains's picture

SHITcoin is the currency version of sticky paper hung from the ceiling, replete with the sweet smell of success to attract the bugs.......



and then it gets ripped down, LOL !......two caps to the back of the head style

fonestar's picture

Well I've been in this game for two years now and I'm feeling pretty bold.  Watching you and your (actual toilet paper) hyperinflate from my side of the virtual fence.  What should cause me to change my opinions?  You and your governments are powerless.  Your dreams worthless.  Your society a flaming bag of dog shit.

SAT 800's picture

two years is an eye-blink in the lifetime of any useful currency. Or less. Much less. There's a lot to be said for being financially conservative.

digi's picture

WTF are you talking about, the average lifespan of a fiat currency is about 30 years.

NidStyles's picture

Notice he said currency, not fiat currency.

TheFourthStooge-ing's picture


You better believe I see where this is going.  I am a visionary!

Fully 'tarded.


Oldballplayer's picture

I up vote you for persistence.

I own BTC. But I just like making money.

Buckaroo Banzai's picture

"Bitcoin’s has one advantage over gold in that it is easier to transfer. That said, we don’t think this is a big advantage given the advent of gold ETFs and the ability to move such ETFs in-between accounts. We would not assign any additional value for Bitcoin in this respect."

Hmmm. Comparing gold ETFs to physical gold is foolhardy. One is a paper product, easily manipulated and naked shorted. The other is actual, physical gold in one's possession.

So the problem remains: how does one transfer one's gold electronically, while avoiding the paper gold manipulators? It seems to me that BitCoin could be the vehicle to do this. Like gold, BitCoins are scarce, and cannot be naked shorted, so they match up well in that regard. The only thing that is missing is a local network of dealers who could exchange BitCoins for gold. Something like, well, a neighborhood coin shop.


Citxmech's picture


The day dealers and the exchanges start price crypto-currencies in Au (and they therefore usable to trade major commodities like oil) is the day that they will stabilize and be actually useful as a true currancy. 

Citxmech's picture

I don't see where they accept crypto-currency - but I do love the "Consumerism" and "Cannabis" rounds.  Pretty funny stuff.

digi's picture

It's an option at checkout and you can see the bitcoin logo at the bottom of the page next to all the other payment processors. I haven't used them personally but I have heard good things and will probably be making some christmas purchases.

Gene Parmesan's picture

How much is a gallon of gasoline in your 7-figure bitcoin world?

fonestar's picture

I already saw my BTC supposedly go to $0 when MtGox suffered it's security breach.  I was watching and thought, "yeah whatever man" and back off to the races the next day hahahahahahahahahaha.......

SAT 800's picture

You're very brave. I hope you don't get your heros medal in a financially posthumous state.

ebworthen's picture

You're jumping the shark.

Drifter's picture

BTC will be $1 million when dollars are worthless.

Empty victory.

fonestar's picture

BTC will still facilitate transfer of payment when dollars are worthless.


Drifter's picture

Transferring worthless dollars. 

Pointless.  Idiocy.

long-shorty's picture

The reason Bitcoin will fail as a currency is that Fonestar is kind of right; were BTC to become remotely widely adopted, it would need to trade to 7 figures and beyond. The # of available bitcoins is too scarce. There's no way late adopters of Bitcoin are going to support such a valuation, as way too much value would have to accrue to the early adopters. Bitcoin will never become widely adopted; it is simply yet another penny stock that will fly as far as the speculators will carry it, until it is abandoned and the hangers-on are left with a mess of losses.

fonestar's picture

A penny stock? Man I thought the people on CNBC blog were dumb!  Bitcoin is a currency and it is gaining massive adoption in case you weren't paying attention.

digi's picture

I assure you the wealth distribution of bitcoin is much better than any presently used currency. And it only stands to be more dispersed as the other currencies become more concentrated. As a wealthy bitcoin holder you spend your coins to increase their adoption and therefore their value. As a wealthy fiat holder you print more money for yourself and your circle of friends.

Saro's picture

"The # of available bitcoins is too scarce."

There will eventually be 21 million bitcoins, each divisible to 8 decimal places.

Is 2.1 quadrillion discrete currency units not enough?

nope-1004's picture

You could be correct, no one knows the future for sure.  The hilarity here though is that the bank now all of the sudden sees fair value some 20% higher than the 900% run it just had....   That's like me predicting in February that January WAS cold.

So this isn't about offering market advice by the bank on BTC, it's about controlling its advance, because if it gets away on them, they lose.

BofA just released a personal desperation piece, that's all.  And its feckin' hilarious.


Stackers's picture

I dont even see it as "fair value" anymore. Hate to admit it but I'm kind of in Hugh Hendry's boat. Fundamentals just dont matter in a world of $5+ trillion per year in new money creation going on. That will not stop (for very long) until the whole system goes into a hyperinflation shit storm (and thats what I stack metal for)


Gold should already be tear assing off into outerspace, but TPTB learned their lesson about letting that happen 30 years ago.