Investment bank and asset management firm Needham & Company has released a report that concludes that bitcoin is currently undervalued by 58% based on today's price.
values bitcoin at $655, compared to about $412 today and advises that investors buy shares in the Bitcoin Investment Trust (GBTC), a vehicle for speculators to invest in bitcoin without actually buying and holding the asset.
Spencer Bogart, author of the report and Needham's newly appointed equity research associate in charge of bitcoin and blockchain, said that the report is a vote of confidence in an emerging technology many have questioned as a stable store of value.
Bogart told CoinDesk:
Currently, there is $74bn worth of gold held in exchange-traded funds (ETFs) around the world, according to the numbers used in the report. Of bitcoin’s market cap of $6.3bn, Bogart estimates roughly 75%, or $4.8bn consists of money being treated as an investment.
That’s 6% of the value of gold ETFs, the report said, a number which the investment bank predicts could increase 25% by 2020.
Bogart used the percentage of bitcoins currently being held as an investment and compared it to investment in gold ETFs to calculate the estimated value of $655.
In June 2015, investment firm Wedbush published it own report, predicting bitcoin's price would increase to $600 over the 12-month period following its release.
Compared to Needham's report which valued GBTC at $62, Wedbush put the number at a comparable $60 per share.
According to Bogart, one factor that has lead to such a large difference between the current listed price of bitcoin and the price of bitcoin Needham projects is the rise in popularity of non-bitcoin blockchains using variations of the technology on which bitcoin is built.
While companies like Overstock's tØ are building top-level networks that ride on top of the bitcoin blockchain, other startups are building on new blockchains. Of late, Ethereum, a blockchain with the promise to decentralize more than just the exchange of value is being widely experimented with by major institutions, though they are using a permissioned version of its distributed ledger.
Most recently, the Depository Trust & Clearing Corporation (DTCC), announced it would build a blockchain proof of concept in partnership with Digital Asset holdings. But as experimentation continues, Bogart continues to believe bitcoin will play a central role.
"We think there’s a strong possibility that bitcoin will be the nucleus of security for all these blockchains," he said.
The second section of the report focuses not on bitcoin but on the Bitcoin Investment Trust (OTCQX: GBTC), a product of Grayscale Investments designed to address investor concerns over investing in bitcoin.
Founded by investor Barry Silbert and launched in mid-2015, the GBTC requires a minimum investment of $25,000.
Investment shares in the trust are worth approximately one-tenth of a bitcoin in an effort to directly tie them to the cryptocurrency's value. As of 31st December, there were 1,476,500 shares issued and outstanding, according to the company’s annual report. Grayscale currently manages $62.6m via the GBTC.
A representative of Grayscale told CoinDesk the company does not respond to third-party reports.
Disclaimer: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Grayscale.
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